Assignment

TheIRS pursuesseveralissuesin theliquidation of a corporation,one, taxbenefitsrule.The IRS takes into consideration the possibility of items of valuenot being recorded as result of being written off to theextentthattheitemshavea fairmarketvaluein taxdepreciationmorethan their adjustbasis(IRS.Examining Officer Guide, 2004).Thesecondissueis fairmarketvalueof an asset. Thetaxpayers arguethatthebookvalueapproximates fairmarketvaluebecauseof taxdepreciationis a measureof wearandtearon asset. Fullydepreciatedasset will havea highfairmarketvaluethan its bookvalue.ThisenablestheExaminer of IRS to be vigilantto theprobabilitythat theFair marketvalueof theasset may significantly exceedtheadjusted basisof theassets. Thirdly, theIRS alsoconsiderscharactergain.Notallgainsare IRC. Soin liquidation theIRS characterizestheearningsanddisregards thegainsthat are not capitalgains.Fourth, IRS looksinto theissueliquidation of corporate income,anditconsiderswhetherthecorporationshaveanyaccountsreceivables not reflectedin booksof accountsthat might resultin capitalgainwithout beingrecordedanywhere. Iftheclientis thecorporationandnot theshareholders,according to IRS (2004) doctrineof incomestatesthattherightsto receiveincomecannot be remuneratedtoshareholdersupon liquidation since thecorporationis theonethat deliveredtheservicesforwhich customerswerebilledthenthereceivables must betaxedto thecorporationIf the income did not result from capital item the IRS have noargument, example, gain from inventory (IRS, Examining Officer Guide,2004). Theelection338(h) (10)allowsa saleof stockto be treatedasthetransactionforfederalincometaxpurposeas ifithadbeenstructuredas an asset sale.Thesellingcompany grouptaxisbasedon inherentgainin thetargetassets. Imagineifa sellingorganizationgrouphas $150 of taxbasis.In thestocksof a targetcorporationhas $100 of taxin its asset, andthestockof thetargetissoldfor$200 to a singlebuyingcorporation.Ifan electionis appliedthesellingconsolidated groupwould have$100 gain.Ifnot madeitwould have$50. I would usenetpresentvaluebecauseitconsidersthetimevalueof money.Itis morerealisticas itmaximizes thewealthof thefirm owners.Measuresprofitin absolutetime.I would purchaseAnheuser –Busch as its rate of return is high at 21.86 and itsinvestments generate high returns. To evaluateperformancea capitalproject,thebudget’s,timescale, purpose,leadershipandeconomicfeasibilityof theprojectshould be usedto measureits progress.Projectsshould beabandonedwhentheybecomeuneconomically feasible.Ifthecostof a projectbecomessomuchthan expectedreturnsof theproject,there is noneedto pursuesuchproject.Postauditsof projects,frequentevaluation of theprojectby theownerto checkprogress,andleadershipdivisionordutiesbetween themanagersandthecontractorincreaseresponsibilitytowards projectmanagement.

References

APractical Guide for Determining Whether a Section 338(h)(10) Shouldbe Made for a Target Insurance Company. (2009). TaxingTimes,5(1).

http://www.taxalmanac.org/index.php/Tax_Research_Resources

IRS.Examining Officer Guide Corporation Liquidation. Part 4. Chapter 11.Section 7. (12-01-2004)