Acquiring a firm with a tax loss can shelter the acquirer's earnings, unless the primary reason for the merger is:

A) diversification to reduce risk.
B) to benefit from economies of scale.
C) to lock in the acquired firm's source of critical supplies.
D) tax avoidance.

Tax Avoidance

Tax avoidance involves legally exploiting the tax system to reduce tax liabilities, such as through deductions and credits, as opposed to tax evasion, which is illegal.

Tax Loss

Tax loss refers to a situation where business expenses exceed its incomes, which can be used to offset other taxable income.

Economies of Scale

Cost advantages a business obtains due to expansion, characteristically causing a decrease in fixed costs per unit of production.