Merrill Lynch & Co., Inc. & Subsidiaries - Page 34




                                       - 34 -                                         
          Corporation” as the likely purchaser and estimated a sales price            
          of $70 million, consisting of $62 million in cash plus the                  
          assumption of $8 million in liabilities.  The presentation also             
          explained how the sale price was determined, quantified the                 
          after-tax income and the tax benefit that would result from the             
          sale, explained the tax risks of the transaction, and recommended           
          the creation of a $35 million tax reserve for the transaction.27            
          In calculating the recommended reserve, the presentation stated             
          the following:                                                              
               As you can imagine, it is the tax aspects that make                    
               this sale especially attractive.  The Tax Department,                  
               in conceiving this transaction, has creatively applied                 
               two different tax concepts to maximize the calculation                 
               of Merrill Lynch’s tax basis in ML Capital Resources.                  
                             *    *    *    *    *                                   
                                                                                     
               The second tax concept deals with the creation of                      
               approximately $210 million in tax basis.  This basis is                
               created by selling the stock of certain ML Capital                     
               Resources subsidiaries to MLAM and ML Realty Inc. for                  
               $210 million, rather than distributing this value to ML                
               Consumer Markets Holdings Inc.  Under the tax rules the                
               sale is recharacterized as two separate transactions; a                
               dividend by MLAM and MLRI to MLCR of $210 million and a                
               contribution to the capital of MLAM and MLRI by MLCR of                
               approximately the same amount.  The dividend received                  
               by MLCR increases Merrill Lynch’s tax basis in MLCR by                 
               $210 million.  MLCR’s contribution to the capital of                   
               MLAM and MLRI has no effect on tax basis.                              



               27The $35 million tax reserve consisted of a $14 million               
          reserve for the possible disallowance of the deemed dividend                
          resulting from the cross-chain sale and a $21 million reserve for           
          lost tax benefits if certain income projections were not                    
          realized.                                                                   





Page:  Previous  24  25  26  27  28  29  30  31  32  33  34  35  36  37  38  39  40  41  42  43  Next

Last modified: May 25, 2011