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We are to sell one of our C Corp subsidiaries. Can someone

tell me the tax consequences...
We are to sell one of our C Corp subsidiaries. Can someone tell me the tax consequences of doing so for us, the seller? It will be an asset sale. Thanks!
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Answered in 16 minutes by:
10/4/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

If at all possible, selling the subsidiary as a stock sale would be much better for you, the seller.

Megan C :

When you sell a business using an asset sale, you will pay tax on the gains you receive on your assets. You will have to allocate the purchase price among the different assets of your business, and then calculate the gain.

Megan C :

Being that it is a subsidiary, provided it is 80% or more owned by another corporation, it will help that there will be less opportunity for double tax.

Megan C :

In a standalone C Corp, the asset sale is taxed, and then there is tax again once the proceeds are distributed to the owners.

Customer:

It is going to be an asset sale since the purchaser does not want to assume the contingent liabilities.

Customer:

If it is asset sale, there will be tax gain recognized on the difference between the purchase price allocated to asset and its tax basis, right?

Megan C :

That is correct

Customer:

is that all for tax consequences?

Customer:

any other tax issues we should be aware of?

Megan C :

There is the possibility of double taxation, once the sale is distributed to shareholders in the form of a dividend

Customer:

the shareholder is a C Corp, a holding company

Megan C :

Yes, but once the dividends are ultimately handed down to the shareholder

Megan C :

they will eventually trickle down to the shareholder

Customer:

OK. Anything else you can think of?

Megan C :

Nothing else that I can think of. It's fairly straight forward

Customer:

If dividend received from a sub, isnt there a DRD 100%?

Megan C :

Yes, that is correct

Megan C :

the double tax doesn't apply to a corp receiving dividends from a sub

Customer:

So, I am still not clear about the trickle down to the shareholder

Customer:

You meant, an individual shareholder who owns our company's stock?

Megan C :

The holding company has shareholders. Surely the gain from the sale would ultimately be distributed to the shareholders through dividends

Customer:

Yes, as I stated above: you meant individual shareholders who own our company's stock?

Megan C :

yes, that's what I mean

Customer:

Yes, I agree and I understand.

Megan C :

Okay...great. Is there anything else you need assistance with today?

Customer:

Thanks for your help

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Thanks, Kendrick for your positive rating. Please come back and visit me any time you have a question that needs answered. It was a pleasure working with you today.
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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
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Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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