Stock-For-Stock

GOOG is buying a smallish, publicly traded credit card security checking software company. Google’s market cap: $500 billion. Cap of that software company: $1 billion. The owners of the software company don’t want to pay taxes, and they think GOOG stock can double again. So instead of taking cash, they take stock in a stock-for-stock transaction.

The owners of the software company are now long a bit of GOOG stock. And everybody’s happy. ‘Cept the IRS, who thus far has collected nothing in taxes. They only get to tax when the equity holders turn that stock into cash by selling it at a gain.