Your client is a C corporation. Your client has identified two potential acquisition targets that it intends to buy:

1. Target 1 - an LLC taxed as a partnership. Assume that all of the value of the LLC is in the form of goodwill for which the LLC has an aggregate "inside" basis of $0. Further assume that the members have an aggregate "outside" basis of $0 in their membership interests. The purchase price for the company is $80M.

2. Target 2 - a C corporation. Assume that all of the value of the corporation is in the form of goodwill for which the corporation has an aggregate basis of $0. Further assume that the corporation has $0 of current or accumulated E&P and that the stockholders have an aggregate basis of $0 in their stock. The purchase price for the company is $65M.

Questions to address in your presentation to the Board of Directors:

Q1. Please describe the potential tax consequences to the buyer (e.g., basis step up, consequences on a future sale by the buyer) of the purchase of Target 1's (a) assets and (b) LLC interests in a transaction where the only consideration paid by the buyer is cash.

Q2. Please describe the potential tax consequences to the buyer (e.g., basis step up, consequences on a future sale by the buyer) of the purchase of Target 2's (a) assets and (b) stock in a transaction where the only consideration paid by the buyer is cash.

Q3. Please describe the potential tax consequences to Target 1 and its members of the sale of Target 1's (a) assets and (b) membership interests in a transaction where the only consideration paid by buyer is cash.

Q4. Please describe the potential tax consequences to Target 2 and its shareholders of the sale of Target 2's (a) assets and (b) stock in a transaction where the only consideration paid by buyer is cash.

Q5. Assume that in any asset sale the buyer will be able to amortize any acquired goodwill over 15 years. Assume that the buyer's applicable tax rate is 42% (federal and state) and that interest rates are 0%. How should the buyer's Board of Directors think about a step- up in the basis of the assets? How much more would the buyer pay to achieve a basis step up?

Q6. Compare the after-tax consequences (if any difference) to the selling members of Target 1 under the following structures:

a. Sale of Target 1's assets for cash followed by the liquidation of Target 1.

b. Sale of Target 1's membership interests for cash.

Q7. Compare the after-tax consequences (if any difference) to the selling stockholders under the following structures:

a. Sale of Target 2's assets for cash followed by the liquidation of Target 2.

b. Sale of Target 2's share for cash.

Q8. Assume that the consideration for each transaction will be paid as follows:

a. 70% stock of buyer (a C corporation).

b. 30% cash.

Describe (in general terms) how a deal to acquire each of Target 1 and Target 2 might be structured in order to allow the selling members of Target 1 and stockholders of Target 2 to defer recognizing the gain on the receipt of the stock of buyer.