Part II

It turns out that Limeaid has net operating losses $($NOLs$)$ of $$16,500.$ The net tax basis of

Limeaid's assets is $$1,800.$ The cash price that FSI is willing to pay for the stock of Limeaid is

$$19,275.$ Limeaid's target shareholders have a basis in the stock of Limeaid of $$4,000.$ The

corporate income tax rate is $21\%.$

Limeaid's shareholders capital gains tax rate is $20\%.$ The after$-$tax discount rate is $7\%.$ Any step$-$

up in the tax basis of Limeaid's assets are amortized over $5$ years on a straight$-$line basis. The

long$-$term tax$-$exempt rate for Limeaid's NOLs under IRC Sec. $382$ is $5\%.$ Limeaid's NOLs will

expire in $12$ years $($hint $-$ this means the NOLs are pre$-2017$ Tax Cut and Jobs Act losses$).$

a$)$ Should FSI make an IRC Sec. $338$ election and use Limeaid's NOLs to offset any gain on the

step up$,$ or should it forgo the IRC Sec. $338$ election and preserve the Limeaid NOLs?

b$)$ Assume the after$-$tax discount rate is now $9\%.$ What is the best structure, to make or not

make the IRC Sec. $338$ election? What do you recommend? Why$/$