XYZ Corporation has a wholly owned subsidiary of

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Description

XYZ Corporation has a wholly owned subsidiary of ABC Corporation. ABC manufactures TVs and at December 31, 2014 had assets with a basis of $27,000,000 (fair market value $63,000,000) and liabilities of $20,000,000. ABC has been unprofitable in the past and has a $10,000,000 net operating loss carryover. GGB Corporation has approached XYZ Corporation about buying ABC’s manufacturing operations. For a variety of reasons, XYZ Corporation would prefer to sell the stock of ABC, and is asking for a sales price of $46,000,000; XYZ’s basis in the ABC stock is $9,000,000. GGB Corporation does not want to purchase ABC stock but would prefer to purchase all of the assets of ABC for $46,000,000 cash and assumes ABC’s liabilities of $20,000,000. XYZ is adamant about the sale being structured as a stock sale, but does not want to lose a potential buyer. They are asking you what the consequences of the asset sale would be versus the stock sale, and if there is anyway the transaction can be structured to make both XYZ and GGB happy? Assuming a federal tax rate of 30%, answer XYZ’s questions, including tax amounts.

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