18 May 2021
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.
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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.
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