Which one of the following statements concerning taxes and acquisitions is correct?
A) In a tax-free acquisition, the shareholders in the acquiring firm maintain their status quo while the shareholders in the target firm are treated as if they sold their shares.
B) In a taxable acquisition, any gains or losses of the target shareholders will be taxed as ordinary income.
C) If the shareholders of the target firm receive shares of the acquiring firm in an acquisition, the acquisition is generally considered a taxable acquisition.
D) In a taxable acquisition, the shareholders in both the target firm and the acquiring firm are treated as if they sold their shares and any capital gains are subject to taxation.
E) In a taxable acquisition, the shareholders in the target firm are treated as though they sold their shares and any capital gains or losses will be realized.

Question

Quizplus · Accepted Answer

In a taxable acquisition, the shareholders of the target firm are indeed treated as if they have sold their shares, leading to the realization of any capital gains or losses. This treatment allows for the taxation of these gains or losses, typically at the capital gains tax rate, rather than as ordinary income.

Which One of the Following Statements Concerning Taxes and Acquisitions