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Distributor's Link Magazine Fall 2018 / Vol 41 No4

92 THE DISTRIBUTOR’S

92 THE DISTRIBUTOR’S LINK Roman Basi Roman Basi is the President of The Center for Financial, Legal & Tax Planning, Inc. Roman graduated from Milliken University obtaining a Bachelor’s of Science Degree with a minor in Psychology. He earned an MBA from Southern Illinois University with an emphasis in Accounting and recevied his JD degree from Southern Illinois University. Roman is a licensed attorney in Illinois, Missouri and Florida and is in high demand for his expertise in financial, legal and tax matters. His areas of expertise include mergers and acquisitions, contracts, real estate law, tax and estate planning. STOCK PURCHASE? ASSET PURCHASE? OR BOTH? The structure of mergers or acquisitions are a major aspect of negotiation when buying or selling a business. In general there are two types of acquisition methods, a stock purchase or an asset purchase. However, in recent transactions we are seeing a hybrid type of transaction. This is one in which the Buyer makes an “election” to buy the Stock of the Company but have it treated as an Asset purchase for tax purposes. These “elections” are commonly found under IRS Section 338(h)(10), 338(g), and 336(e). While examining each type of election we will focus on some fundamental areas: (1) buyer; (2) seller; (3) target (a “target” is the company/ business to be acquired); (4) qualifying offer (a “qualifying offer”; and (5) impact of election on purchase agreement of buyer and seller. First, let’s examine the structure and restrictions for buyers and sellers as part of a 338(h)(10) election. The 338(h)(10) is primarily concerned with the purchase of S-corporation stock. Unlike the 338(g) and 336(e) elections, the buyer in a 338(h)(10) can be a domestic or foreign corporation, but is limited to a single C or S-corporation. While the buyer can be domestic or foreign, the target corporation must be domestic. Additionally, the seller must be a U.S. corporation in the same group as the target, or an S-corporation stockholder. The qualifying transaction for such an election is a qualifying stock purchase. A qualified stock purchase requires that 80% of the stock be purchased in a 12 month period prior to the election. The 338(h) (10) election is proposed jointly by the buyer and seller. When the election is made, the transaction is technically a Stock Sale, but it is treated as an Asset Sale for Tax Purposes and depending on the dollar amounts allocated to the Assets, this can have a significant tax CONTRIBUTOR ARTICLE impact to a Seller. The next type of election is a 338(g), which differs from the 338(h)(10) in a number of aspects. One existing similarity is the buyer must be a single C or S-corporation. Unlike the 338(h)(10), the target can be either a domestic or foreign corporation. The seller in a 338(g) is almost unrestricted, as the seller is open to be one or more corporate sellers, noncorporate sellers, or a domestic or foreign seller. Like the 338(h) (10) election, the 338(g) election requires a qualifying transaction wherein a qualified stock purchase of at least 80% must take place within a 12-month period. However, unlike the 338(h)(10), a 338(g) election is chosen by the only by the buyer due in large part to the 338(g)’s double taxation. Due to the double taxation, both the buyer and seller should carefully consider clauses in the agreement that may allow or bar the 338(g) election, or more specifically the seller should require the buyer to increase purchase price to cover the taxation. The final type of election is the 336(e), which shares some aspects of the 338(h)(10) and 338(g), but still has its own restrictions. A 336(e) election buyer can be one or more corporate, non-corporate, or even domestic and foreign buyers. Similar to the 338(h)(10) election, the target is limited to domestic C or S-corporations, and the seller is limited to domestic corporations as well. The qualifying transaction can happen through a qualifying stock disposition, however if it qualifies for a qualifying stock purchase, it will likely bar the 336(e) election. This type of election can also be chosen by the target and seller, but not the buyer. The key to any of these types of elections is to understand what happens when a Buyer or Seller makes one and the tax implications it may have. ROMAN BASI

BTM MANUFACTURING THE DISTRIBUTOR’S LINK 93 15403 Andrews Rd Kansas City, MO 64147 TEL 1-800-369-2658 EMAIL sales@btm-mfg.com WEB www.btm-mfg.com BTM MANUFACTURING AWARDED ISO 9001:2015 ISSCO INC dba BTM Manufacturing is excited to announce ISO 9001:2015 certification. The new standard demands a high-degree of leadership commitment with greater emphasis on risk-based thinking and accountability throughout all organizational levels and processes. ISSCO INC dba BTM Manufacturing’s quality management system is aligned and integrated throughout our business model with continued focus on customer satisfaction. “I am thrilled to share the news that BTM Manufacturing is now ISO 9001:2015 certified. From early on, the management team at BTM knew that our success would be tied to becoming an ISO certified company, so we intentionally set out to improve our quality management system. At BTM Manufacturing, our team is our greatest asset, so we will promote safety first, then quality, service and price as we continue to meet the expectations of our customers,” says BTM Manufacturing President, Jake Davis. ISO 9001 helps organizations demonstrate to customers that they can offer products and services of consistently good quality. It also acts as a tool to streamline their processes and make them more efficient at what they do. BTM Manufacturing is committed to continual improvement and efficiencies that will benefit our customers, and is proud to maintain compliance with ISO rigorous standards. BUSINESS FOCUS ARTICLE BTM MANUFACTURING

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