In the case of a stock transaction, an important question is whether the buyer and seller should choose to treat the transaction as a sale of assets. This choice may be made in CRI Sections 338, 336 and 754, depending on the nature of the entity involved and whether other criteria are met. Further discussion would be beyond the scope of this article. Tax attributes are not transferred to the buyer in the event of an asset transaction. Sellers should carefully consider situations in which the target business has significant tax attributes and the sale of assets is pursued. The target entity may use these tax attributes to offset all profits recognised as a result of the transaction (taking into account restrictions resulting from a previous change in ownership). In the event of a change of control, it is also important to consider new debt issues related to the agreement. Debt agreements should be reviewed to determine whether debt is the right characterisation (relative to equity). In the event of the acquisition of assets, the taxable base of the assets acquired is revalued at fair value (FMV) in amounts to be mutually agreed between the buyer and the seller (see § 1060).
The consideration (including redeeming liabilities) is first allocated to the most liquid assets on a fair value basis and, more recently, to intangible assets and goodness (Classes VI and VII). The FMV allocation among assets is generally similar to that intended for financial reporting. .