In most situations, a target subsidiary has some assets that have appreciated in value (i.e., fair market value exceeds the asset's basis), and other assets where the value is less than the asset's basis.In such case, the acquiring corporation, desiring the highest basis possible for the assets, might first purchase the appreciated property, then purchase the subsidiary's stock, and then liquidate the subsidiary under § 332.By so doing, the acquiring corporation might violate the Code's "consistency" provision.

Question

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The described transaction sequence of purchasing appreciated property, then purchasing the subsidiary's stock, and then liquidating the subsidiary under § 332 may result in a violation of the Code's "consistency" provision. This provision requires that the acquiring corporation's basis in the subsidiary's assets and the subsidiary's basis in its assets be consistent, and the described transaction sequence could potentially result in an inconsistent basis.

In Most Situations, a Target Subsidiary Has Some Assets That