Which of the Following Statements Regarding Mergers and Taxes Is

question 32

Multiple Choice

Which of the following statements regarding mergers and taxes is false?

• A) Carryback and carryforward provisions essentially deliver the benefits of conglomeration to a small firm with volatile earnings.
• B) It might appear that a conglomerate has a tax advantage over a single-product firm simply because losses in one division can offset profits in another division.
• C) Companies with current-year losses can also use them to offset earnings (carryback) for the twenty prior years.
• D) The IRS will disallow a tax break if it can show that the principal reason for a takeover is tax avoidance, so it is unlikely that the tax advantage could, by itself, be a valid reason to acquire another firm.

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Definitions:

Perfected Interest

A legal claim or lien that has been formally established to secure priority over other claims concerning the same asset or property.

Repossession

The process by which a creditor takes back property from the borrower, due to failure to make required payments.

Security Interest

A legal claim or right granted in an asset as collateral to ensure the fulfilment of an obligation, typically repayment of a loan.

Legal Remedy

The means through which a court of law enforces a right, imposes a penalty, or makes another court order to impose its will.