Not true because of the nols they would have wanted the stock 2 and they can still do that under a 363 sale.
Income Tax
Considerations
of the Section
363 Sale
A Section 363 sale can
take the form of a sale of
the debtor stock or of the
debtor assets. The debtor
(and sometimes the buyer)
income tax attributes will
often influence the type of
transaction that is preferred
by each party.
For example, the buyer
may wish to keep the debtor
corporation intact and, there-
by, preserve the debtor income tax attributes, such as
its net operating losses (NOLs). In that case, the buyer
will prefer to purchase the debtor corporation stock.
However, if the buyer cannot use the debtor
income tax attributes, then the buyer may prefer to
purchase the debtor corporation assets. That way,
the buyer can obtain a step-up in the depreciable
tax basis of the acquired debtor assets. This tax
basis step-up can result in future depreciation or
amortization income tax deductions for the buyer.
On the other hand, the debtor corporation will
generally want to minimize the taxable income rec-
ognized on the sale of either its stock or its assets.
The seller’s ability to minimize the reported income
on the sale will depend on:
1. the debtor’s tax basis in the corporation
stock or the corporation assets,
2. the availability of offsetting losses, and
3. the realization of any cancellation of debt
(COD) income related to the bankruptcy or
reorganization.
The debtor corporation may be able to indefi-
nitely defer the recognition of the gain on the
transaction by structuring the Section 363 sale as
a tax-free reorganization under Internal Revenue
Code Section 368.
