Question: Python Corp specializes in buying troubled business and squeezing them dry by firing a large percentage of their employees and selling them again at a
Python Corp specializes in buying troubled business and squeezing them dry by firing a large percentage of their employees and selling them again at a profit. In 20x1, Python pays $10,000,000 to its investment banker, Stalker, to evaluate the acquisition of several failing businesses. Assume that in 2021 Stalker evaluates 20 businesses and recommends 8 to Python. Python does not make an offer to buy any of the 8 recommended companies until 2022. Also assume that the $10,000,000 can be allocated equally among all the 20 businesses investigated and that Python deducted the full $10,000,000 on its AFS. a. Python may deduct all $10,000,000 it paid to Stalker because this is a covered transaction and it abandoned the pursuit of 12 of the potential target in 2021 and the costs incurred for the remaining 8 were incurred well before it made an offer for any of them. b. Python can deduct all $10,000,000 on its tax return because it also deducted that amount on its AFS. c. Python can deduct in 20x1 only the $6,000,000 (10,000,000/20 = 500,000 x 12)) attributable to the abandoned potential targets. d. Python cannot deduct any of the costs in 2021 because such costs are
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