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General tax questions


muscleman
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Since there is a general accounting question thread, I think it also makes sense to have a general tax questions thread.  :)

 

Let me start with this question:

Liberty Interactive acquired TRIP at a very low cost basis, let's assume it is $10 per share for this question's sake. They later wrapped the stocks into LTRPA and spun it off. Some people say after two years, if LTRPA is acquired as a stock for stock swap, there will be no taxes.

1. Does this restrict it to acquisition by any company or just TRIP?

2. If LTRPA is acquired by, say AT&T and swapped for AT&T stocks, what's the tax basis for LTRPA shareholders? I think it should be ONLY related to the cost basis when each shareholder bought the LTRPA stock, right?

3. In that case, what's the cost basis of TRIP inside AT&T after it acquires LTRPA? Is it $10 a share?

4. What if LTRPA is acquired by TRIP for a full stock deal? In that case, what's the cost basis of TRIP for the original LTRPA shareholders? What's the cost basis of the TRIP stocks that TRIP just acquired from LTRPA?

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In your case - the cost basis should be the original cost basis in TRIP. It gets interesting when the payment is cash + stock.

 

I have a separate question on sales taxes, when company A is bought by company B; is there a sales tax due to the local government? It looks like the assets would require a sales tax but I haven't seen sales tax being paid in any acquisition - so wondering if some one could shed light on this?

 

thanks!

 

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In your case - the cost basis should be the original cost basis in TRIP. It gets interesting when the payment is cash + stock.

 

I have a separate question on sales taxes, when company A is bought by company B; is there a sales tax due to the local government? It looks like the assets would require a sales tax but I haven't seen sales tax being paid in any acquisition - so wondering if some one could shed light on this?

 

thanks!

 

Your answer is too vague. I asked a couple of questions. Which one are you referring to?

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Muscleman, I suspect there are multiple tax experts on this board, but it is March 31st.  I highly doubt they are active on these threads to answer tax questions when the US federal tax deadline is 2 weeks away.  All the tax pros that I know are working 18-20 hour days right now, and will continue to do so through April 15. 

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Muscleman, I suspect there are multiple tax experts on this board, but it is March 31st.  I highly doubt they are active on these threads to answer tax questions when the US federal tax deadline is 2 weeks away.  All the tax pros that I know are working 18-20 hour days right now, and will continue to do so through April 15.

 

Thanks! Hopefully someone will help me understand this issue later.

I always wondered why people say LTRPA is trading at a discount. With the tax liability, it is not.

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Since there is a general accounting question thread, I think it also makes sense to have a general tax questions thread.  :)

 

Let me start with this question:

Liberty Interactive acquired TRIP at a very low cost basis, let's assume it is $10 per share for this question's sake. They later wrapped the stocks into LTRPA and spun it off. Some people say after two years, if LTRPA is acquired as a stock for stock swap, there will be no taxes.

1. Does this restrict it to acquisition by any company or just TRIP?

2. If LTRPA is acquired by, say AT&T and swapped for AT&T stocks, what's the tax basis for LTRPA shareholders? I think it should be ONLY related to the cost basis when each shareholder bought the LTRPA stock, right?

3. In that case, what's the cost basis of TRIP inside AT&T after it acquires LTRPA? Is it $10 a share?

4. What if LTRPA is acquired by TRIP for a full stock deal? In that case, what's the cost basis of TRIP for the original LTRPA shareholders? What's the cost basis of the TRIP stocks that TRIP just acquired from LTRPA?

 

I'm not a tax expert but I think you may be mixing up a number of tax issues:  a) the tax for Liberty from spinning out LTRPA; b) the tax situation on the gains inside LTRPA; and c) from being a shareholder of LTRPA.

 

The 2 years generally references the spinout of LTRPA from Liberty.  If a spinout is acquired within that period there is a risk that the tax authorities can look back and put the capital gains tax liability from sale back on the spinner (Liberty).  I've heard it is not a hard and fast rule within that 2 years but generally that 2 years is the time period after which this risk is deemed to have been removed for Liberty.

 

Inside LTRPA, the company holds the shares of TRIP with a very low tax basis.  If it sells those shares it will be subject to tax on the gains.  If it swaps those shares for another asset of equal value then there is no realized gain, the company will just hold that new asset but still have the same tax basis on the new asset.  If the company is acquired as a whole, the acquirer will take those assets at the low original tax basis and will not be able to depreciate them.

 

As a shareholder of LTRPA, your tax basis should have been set at the time of the spinout (I think you can get these off the Liberty website).  After the spinout, your tax basis should be same as for any other stock - ie. your cost of purchase.

 

Again, not a tax expert but have gone through a number of these between Liberty stocks and the Graham spinoff of CableOne.

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Since there is a general accounting question thread, I think it also makes sense to have a general tax questions thread.  :)

 

Let me start with this question:

Liberty Interactive acquired TRIP at a very low cost basis, let's assume it is $10 per share for this question's sake. They later wrapped the stocks into LTRPA and spun it off. Some people say after two years, if LTRPA is acquired as a stock for stock swap, there will be no taxes.

1. Does this restrict it to acquisition by any company or just TRIP?

2. If LTRPA is acquired by, say AT&T and swapped for AT&T stocks, what's the tax basis for LTRPA shareholders? I think it should be ONLY related to the cost basis when each shareholder bought the LTRPA stock, right?

3. In that case, what's the cost basis of TRIP inside AT&T after it acquires LTRPA? Is it $10 a share?

4. What if LTRPA is acquired by TRIP for a full stock deal? In that case, what's the cost basis of TRIP for the original LTRPA shareholders? What's the cost basis of the TRIP stocks that TRIP just acquired from LTRPA?

 

I'm not a tax expert but I think you may be mixing up a number of tax issues:  a) the tax for Liberty from spinning out LTRPA; b) the tax situation on the gains inside LTRPA; and c) from being a shareholder of LTRPA.

 

The 2 years generally references the spinout of LTRPA from Liberty.  If a spinout is acquired within that period there is a risk that the tax authorities can look back and put the capital gains tax liability from sale back on the spinner (Liberty).  I've heard it is not a hard and fast rule within that 2 years but generally that 2 years is the time period after which this risk is deemed to have been removed for Liberty.

 

Inside LTRPA, the company holds the shares of TRIP with a very low tax basis.  If it sells those shares it will be subject to tax on the gains.  If it swaps those shares for another asset of equal value then there is no realized gain, the company will just hold that new asset but still have the same tax basis on the new asset.  If the company is acquired as a whole, the acquirer will take those assets at the low original tax basis and will not be able to depreciate them.

 

As a shareholder of LTRPA, your tax basis should have been set at the time of the spinout (I think you can get these off the Liberty website).  After the spinout, your tax basis should be same as for any other stock - ie. your cost of purchase.

 

Again, not a tax expert but have gone through a number of these between Liberty stocks and the Graham spinoff of CableOne.

 

 

Thank you very much!

Regarding the case when Liberty Trip is acquired by TRIP, TRIP will hold the low cost basis of the shares inside Liberty Trip. Then if trip sells these shares, it has to pay the capital gain, but what if it cancels the shares just like in a buyback program?

 

Another question. Why not directly spin off the trip shares to shareholders? Why go through this entire cycle to spin off Liberty trip, wait for two years, negotiate acquisition, and eventually the shareholder would receive trip shares?

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Since there is a general accounting question thread, I think it also makes sense to have a general tax questions thread.  :)

 

Let me start with this question:

Liberty Interactive acquired TRIP at a very low cost basis, let's assume it is $10 per share for this question's sake. They later wrapped the stocks into LTRPA and spun it off. Some people say after two years, if LTRPA is acquired as a stock for stock swap, there will be no taxes.

1. Does this restrict it to acquisition by any company or just TRIP?

2. If LTRPA is acquired by, say AT&T and swapped for AT&T stocks, what's the tax basis for LTRPA shareholders? I think it should be ONLY related to the cost basis when each shareholder bought the LTRPA stock, right?

3. In that case, what's the cost basis of TRIP inside AT&T after it acquires LTRPA? Is it $10 a share?

4. What if LTRPA is acquired by TRIP for a full stock deal? In that case, what's the cost basis of TRIP for the original LTRPA shareholders? What's the cost basis of the TRIP stocks that TRIP just acquired from LTRPA?

 

I'm not a tax expert but I think you may be mixing up a number of tax issues:  a) the tax for Liberty from spinning out LTRPA; b) the tax situation on the gains inside LTRPA; and c) from being a shareholder of LTRPA.

 

The 2 years generally references the spinout of LTRPA from Liberty.  If a spinout is acquired within that period there is a risk that the tax authorities can look back and put the capital gains tax liability from sale back on the spinner (Liberty).  I've heard it is not a hard and fast rule within that 2 years but generally that 2 years is the time period after which this risk is deemed to have been removed for Liberty.

 

Inside LTRPA, the company holds the shares of TRIP with a very low tax basis.  If it sells those shares it will be subject to tax on the gains.  If it swaps those shares for another asset of equal value then there is no realized gain, the company will just hold that new asset but still have the same tax basis on the new asset.  If the company is acquired as a whole, the acquirer will take those assets at the low original tax basis and will not be able to depreciate them.

 

As a shareholder of LTRPA, your tax basis should have been set at the time of the spinout (I think you can get these off the Liberty website).  After the spinout, your tax basis should be same as for any other stock - ie. your cost of purchase.

 

Again, not a tax expert but have gone through a number of these between Liberty stocks and the Graham spinoff of CableOne.

 

 

Thank you very much!

Regarding the case when Liberty Trip is acquired by TRIP, TRIP will hold the low cost basis of the shares inside Liberty Trip. Then if trip sells these shares, it has to pay the capital gain, but what if it cancels the shares just like in a buyback program?

 

Another question. Why not directly spin off the trip shares to shareholders? Why go through this entire cycle to spin off Liberty trip, wait for two years, negotiate acquisition, and eventually the shareholder would receive trip shares?

 

Good question.  Just speaking from logic not expertise here...

 

For the 2nd question - it is taxable to distribute the shares directly.  That's why Yahoo couldn't distribute their Baidu shares directly.  You need to package it up with an operating business to do the spinout on a non taxable basis.

 

On the 1st question, I'm not really sure but it seems counterintuitive to pay gains on your own shares.  Otherwise you could take capital losses on issuing shares and buying them back at a higher price.  You're beyond my knowledge on that one!

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