The Merger Tax Status Decision

Abstract

In this study, the influence of the federal tax code on reorganization tax status chosen for a merger is examined with a logit model. Findings indicate that the potential to step up the depreciable basis of acquired assets less depreciation recapture significantly influences the tax status chosen for a merger. Carryover attributes of the acquired firm do not affect the choice of tax status for a merger; thus, legislative concern over the transfer of tax losses and other carryover items may be unjustified. Immediate recognition of taxable gain by the acquired firm's shareholders does not appear to influence the choice of merger tax status, casting doubt on the theory that the medium of exchange used for a merger is determined after considering the amount of immediately recognized taxable gain if a taxable status is chosen.