Pitfalls and Profits: Acquiring Financially Distressed Companies

The coronavirus pandemic and associated state-mandated business closures may have exacerbated the problems of companies that were already in distress before the pandemic, and, unfortunately, may even have created these problems for otherwise healthy companies—even entire industries. On the flip side, some business may be thriving and will be able to continue to strengthen and/or expand their business by acquiring companies that are in distress. This practice note discusses the nature of a distressed company, the differences between asset and stock sales, pitfalls for buyers and sellers, reporting requirements, tax implications of losses, and bankruptcy remedies.

READ MORE

Related Content 

• Tax Considerations in M&A Resource Kit
  Discover the importance of tax considerations in many M&A transactions. Attaining the desired tax consequences is a significant consideration when planning and structuring an acquisition. Tax considerations in the M&A space include, but are not limited to: whether the transaction can and should be tax-free to some or all parties; the amount of gain recognized, if any, by the sellers and the tax rate applied to the gain; the tax treatment to the buyer and/or the entity being acquired, including whether the entity is subject to tax on the acquisition or any effects on the entity’s tax attributes; and maximizing tax efficiencies for the business going forward either through restructuring or otherwise.

Practical Guidance Updates
Featuring the latest updates in Practical Guidance.  

• Take Our Short Survey and Earn a $5 Reward*
• Tax Key Legal Developments Tracker (Federal)
  Stay informed on new developments.
  • Business Entities: IRS released updated early drafts of new Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021 (filing season 2022). The schedules are designed to provide greater clarity for partners and shareholders on how to compute their U.S. income tax liability regarding items of international tax relevance, including claiming deductions and credits. IRS, Draft Tax Forms.
  • Employment: IRS issued a notice addressing the taxation of dependent care benefits provided through a dependent care assistance program (DCAP) made available in taxable years ending in 2021 and 2022 due to the application of either the carryover or the extension of a claims period under § 214 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. No. 116-260. I.R.S. Notice 2021-26.
• Document alerts allow you to stay current on legal developments that affect your practice. Find out how to set up your document alerts.
• New Practical Guidance Content
  • Oil and Gas Tax: Fracking Developments and Incentives State Law Survey
  • International Tax Enforcement
  • Tobacco Excise Taxes
  • Energy Tax Credits and Incentives
  • Employer Resources on Remote Working Rights/Trends (U.S. and International)
  • NY Tax Dept. Probing Taxpayers About Residency, Attys Say
• Recently Updated Practical Guidance Content
  • COBRA Subsidy Rules Under the American Rescue Plan Act: Client Alert Digest
  • Employee Benefit Plan COVID-19 Relief Chart and Tracker
  • Partnerships and LLCs: Reporting and Procedural Requirements

*Subject to terms and conditions available here.

Experience results today with practical guidance, legal research, and data-driven insights—all in one place.

Experience Lexis+