In a cash purchase of assets. the target's shareholders could be taxed twice, once when the firm pays taxes on any gains and a second time when the proceeds from the sale are paid to the shareholders either as a dividend or distribution following liquidation of the corporation.

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In a cash purchase of assets, the firm would need to pay taxes on any gains from the sale, and then the shareholders would also be taxed on the proceeds they receive from the sale either as a dividend or as part of a liquidation distribution. This results in potential double taxation for the shareholders.

In a Cash Purchase of Assets