Tax considerations are seldom the determining factor in deciding whether to purchase a business. However, taxes often affect the price and form (e.g., purchase of stock or purchase of assets) the acquisition takes. This is true because the rationally determined price will be based on the expected present value of after-tax future cash flows.

The tax component of the equation will depend on the form the acquisition takes. From the seller's perspective, tax considerations are extremely important. The tax implications of the purchase and sale of a business depend largely upon who is the...