This reverse triangular merger, for tax purposes, will be treated as a taxable purchase of stock. As a general rule, the merger of the target with and into the buyer or a subsidiary for cash or other property, other than stock of the buyer, will be a taxable transaction. Monster will recognize a taxable gain or loss on the appreciation or depreciation in the value of its stock, which will be equal to the difference between the sale proceeds and Monster's tax basis in the stock. The tax basis of the assets held by Monster will not be affected by the stock sale. Thus, the assets held by the Monster are not subject to a step-up basis and a stock sale will not trigger additional amounts of depreciation or amortization following the transaction.
Even though this transaction satisfies the Internal Revenue Code Section 338 election requirements, no election shall be made because the additional tax liability exceeds the present value of the tax savings from the step-up in the tax basis of the net acquired assets. As such, the values of Monster’s assets and liabilities will be consolidated with TCCC’s financial statements after the acquisition, based upon the historical tax basis of the assets. The purchase price reflects TCCC’s loss with respect to the additional tax savings that would have resulted from acquiring assets and writing them up to fair market value.