Mar 11, 2010
Death Liquidation and Taxes
TechCrunch reports that AOL may be (much) better off abandoning social media network Bebo (acquired for $850 million) rather than trying to sell it. The reason? They can write off the whole purchase price if they abandon the asset (a $350 million tax savings) and if they sell it the write down of the asset can only be used to offset capital gains taxes (of which they have none).
I understand treating capital gains separate from income. I also understand that there’s a (byzantine) logic to our corporate tax laws. But surely there must be a way to write the tax laws so that destroying assets isn’t more valuable than selling it, right? If that’s not the definition of a perverse incentive, I don’t know what is.
Is there anyone who believes that rules like this in our tax system create more social value than they destroy? Anyone?