Purchase price allocations restricted by Tax Reform Act of 1986
Article Abstract:
The Tax Reform Act of 1986 changes the way in which the parties to an asset sale may allocate the purchase price among the assets. The ability of the parties to allocate the purchase price among the assets within the agreement is not changed, but the valuation methods used in determining the fair market value of the assets must conform to the provisions set forth in Section 338(b)(5) of the Tax Reform Act. Section 338(b)(5) groups assets into four classes and establishes a priority system for the asset classes. In descending order, the classes are: cash; securities; assets not covered by the other three classes; and intangible assets such as goodwill. The purchase price must first be allocated to the fair market value of the Class I assets. Any portion of the purchase price remaining is then allocated to the fair market value of the Class II assets. This 'residual method' of allocation continues through the other classes until the sum of the purchase price is reached.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1987
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How to make the most of the remaining deductions under the new law
Article Abstract:
The Tax Reform Act of 1986 has disallowed or limited deductions for most types of interest. The types of interest for which deductions are still allowed include: interest paid or accrued on indebtedness incurred in connection with a business; investment interest; interest under the passive activity rules; qualified residence interest; and interest payable under the deferred estate tax rules. These disallowances are to be phased in over a four year period; all personal interest will be disallowed after 1990. The deductibility of interest on investment indebtedness is limited to $10,000 plus net investment income. Qualified residence interest is defined as interest on indebtedness which is secured by the taxpayer's principal residence and one other residence selected by the taxpayer. The calculations required for determining qualified residence interest are described.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1987
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New law taxes excess distributions and contains additional restrictions on plans
Article Abstract:
The Tax Reform Act of 1986 makes several changes in the distribution of qualified pension plans, such as a 15 percent tax imposed on 'excess distributions' made during a calendar year. An excess distribution is any amount from a qualified plan, IRA, or tax-sheltered annuity in excess of $150,000 for unindexed plans or $112,500 adjusted for cost of living increases. The exceptions to the 15 percent tax are discussed. The distribution rules for rehired employees, rollovers, deferred annuity contracts, loans and simplified employee pension plans are also described.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1987
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- Abstracts: Tax focus of employee stock incentive programs changed as a result of Tax Reform Act of 1986. Owners of closely held corporations can reap special benefits from ESOPs
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