Which two of these are required for an acquisition to be considered tax-free?
I.The bidder must purchase the target firm for less than its current market value.
II.The acquisition must have a business purpose other than the avoidance of taxes.
III.The stockholders in the target firm must retain an equity interest in the bidder.
IV.The acquisition must be a lump sum cash transaction.
A)I and II only
B)III and IV only
C)II and III only
D)I and III only
E)II and IV only

Question

Quizplus · Accepted Answer

I) is incorrect because purchasing the target firm for less than its market value is not a requirement for a tax-free acquisition.

II) is correct because there must be a legitimate business purpose for the acquisition, and it cannot simply be for the purpose of avoiding taxes.

III) is correct because the stockholders in the target firm must retain an equity interest in the bidder in order for the acquisition to be tax-free.

IV) is incorrect because the acquisition does not have to be a lump sum cash transaction in order to be tax-free.

Which Two of These Are Required for an Acquisition to Be