asset acquisitions - Jackson Walker LLP

(iii) Consolidated Group. Seller (A) has not been a member of an affiliated groupwithin the meaning of Code Section 1504(a) (or any similar group defined under asimilar provision of state, local or foreign law), and (B) has no liability for Taxes ofany person (other than Seller and its Subsidiaries) under Reg. §1.1502-6 (or anysimilar provision of state, local or foreign law), as a transferee or successor bycontract or otherwise.(iv)1361.S Corporation. Seller is not an S corporation as defined in Code SectionALTERNATIVE No. 1:Seller is an S corporation as defined in Code Section 1361 and Seller is not and hasnot been subject to either the built-in-gains tax under Code Section 1374 or thepassive income tax under Code Section 1375.ALTERNATIVE No. 2:Seller is an S corporation as defined in Code Section 1361 and Seller is not subject tothe tax on passive income under Code Section 1375, but is subject to thebuilt-in-gains tax under Code Section 1374, and all tax liabilities under Code Section1374 though and including the Closing Date have on shall be properly paid anddischarged by Seller.INCLUDE WITH BOTH ALTERNATIVE No. 1 AND No. 2:Part 3.14(d)(iv) lists all the states and localities with respect to which Seller isrequired to file any corporate, income or franchise tax returns and sets forth whetherSeller is treated as the equivalent of an S corporation by or with respect to each suchstate or locality. Seller has properly filed Tax Returns with and paid and dischargedany liabilities for taxes in any states or localities in which it is subject to Tax.(v) Substantial Understatement Penalty. Seller has disclosed on its federalincome Tax Returns all positions taken therein that could give rise to a substantialunderstatement of federal income Tax within the meaning of Code Section 6662.COMMENTSection 3.14 seeks disclosure of tax matters that may be significant to a buyer.Although the buyer does not assume the seller’s tax liabilities, the buyer would be interestedin both ensuring that those liabilities are paid and understanding any possible tax issues thatmay arise in the buyer’s post-acquisition operation of the business. By obtaining assurancesthat the seller has paid all of its taxes, the buyer reduces the likelihood of successor liabilityclaims against it for the seller’s unpaid taxes. Although such a claim is unlikely for thefederal income tax liability of the seller, such a claim could be made for state or local taxes.Some state laws specifically provide that a buyer in an asset acquisition may beliable for the selling corporation’s state tax liability. For example, Section 212.10 of theFlorida Statutes (1) requires a seller to pay any sales tax within 15 days of the closing; (2)3148166v1- 84 -