Explanation

Following are the three types of mergers regarding taxes:

Non-taxable exchange of shares- In this case, the acquiring company offers shares in the post-merger company to the target company's shareholders in exchange for shares of the target company. The target company's shareholders do not have to pay taxes at any time of the merger.
Taxable purchase of assets- In this case, the acquiring company acquires pre-specified assets and liabilities of the target company. The target company pays taxes on capital gains if the assets and liabilities are sold at a price higher than its book value.
Taxable purchase of shares- In this case, the acquiring company purchases the target company's shares. The acquiring company owns the controlling interest or all stock of the target company. The target company pays taxes on capital gains if the assets and liabilities are sold at a price higher than its book value.

Verified Answer

Following are the types of mergers regarding taxes:

Non-taxable exchange of shares
Taxable purchase of assets
Taxable purchase of shares