Exam 7: Corporate Acquisitions and Reorganizations

The assets of Bold Corporation have a $1,000,000 basis and a $3,000,000 FMV. Its liabilities are $500,000. Tidel Corporation acquires 80% of the Bold Corporation stock for $2,000,000. What gain is recognized by Bold Corporation if a timely Sec. 338 election is made by Tidel Corporation? What is the total basis of the assets to Bold Corporation following the deemed sale? Assume a 34% corporate tax rate.

Identify which of the following statements is false.

Acquiring Corporation acquires at the close of business on June 30 (of a nonleap year) all of the stock of Target Corporation as part of a merger transaction. Target Corporation is liquidated into Acquiring Corporation on the same day as part of the merger. Acquiring obtains assets having a $600,000 FMV and a $275,000 adjusted basis, along with a $100,000 net operating loss. Acquiring Corporation reports taxable income of $146,000 for the year. What amount of Target Corporation's NOL can be used to offset Acquiring Corporation's taxable income? (Assume all months have 30 days and ignore the Sec. 382 limitation rules.)

Rock Corporation acquires all of the assets of Stone Corporation using only its voting stock. Stone Corporation distributes the Rock stock to its shareholders pursuant to its liquidation. After the acquisition, Stone Corporation's shareholders own 20% of the Rock stock (by voting power and value). The transaction is classified as a

Gulf Corporation wants to acquire all of Beamer Corporation's assets and liabilities in a Type C reorganization. The FMV of Beamer's assets is $500,000. Beamer's liabilities are $70,000. How much cash can Gulf Corporation use to pay for Beamer's assets without violating the Type C reorganization requirements?

In a Type B reorganization, the acquiring corporation obtains substantially all of the target corporation's assets in exchange for its voting stock and a limited amount of other consideration.

Why would an acquiring corporation want an acquisition to be tax- free if it gets only a substituted basis rather than a step- up basis for the acquired assets?

Identify which of the following statements is true.

Parent Corporation purchases all of Target Corporation's stock for $200,000 and makes a deemed liquidation election. Target Corporation has Class I assets with an adjusted basis of $55,000 and an FMV of $55,000; Class II assets with an adjusted basis of $40,000 and an FMV of $60,000; and Class V assets with an adjusted basis of $70,000 and an FMV of $100,000. The Class V assets are subject to a $20,000 liability. Assume a 34% corporate tax rate. Assuming that the adjusted grossed- up basis is $237,000 ($200,000 + $20,000 + $17,000 federal income taxes), wh is the allocation of adjusted grossed- up basis to Class VI assets?

Identify which of the following statements is true.

Midnight Corporation transferred part of its assets to Noon Corporation in exchange for all of Noon's stock. Midnight distributed all of Noon's stock pro rate to Midnight's shareholders. What is this type of reorganization?

Identify which of the following statements is true.

The Supreme Court has held that literal compliance with the statutory requirements for a reorganization transaction is not enough for a transaction to receive tax- free treatment. The courts have placed four primary restrictions on reorganization transactions. What are they?

Marty is a party to a tax- free reorganization. He has a basis of $22,000 in his Van Corporation stock that has an FMV of $35,000. Marty exchanges the Van stock for Young Corporation stock worth $29,000 and Young securities with a face amount of $7,000 and an FMV of $6,000. What is Marty's basis in the Young securities?

Acme Corporation acquires Fisher Corporation's assets in a Type A reorganization for $800,000 of Acme's nonvoting preferred stock and $200,000 (face amount and FMV) of securities. The assets have an adjusted basis of $600,000 and an FMV of $1,500,000. In addition, Acme Corporation assumes $500,000 of Fisher's liabilities. At the time of the transfer, Acme's E&P is $400,000. Fisher distributes the stock and securities to its sole shareholder Barbara for all of her Fisher stock. After the reorganization, Barbara owns 25% of Acme's stock. Barbara has an adjusted basis of $400,000 in her Fisher stock. What is Barbara's basis for her Acme stock?

In Fall 1999, Ford Motor Company's board of directors announced the $25.8 billion spin- off of its 80.7% interest in the Associated First Capital Corporation finance unit to the Ford shareholders. Ford said that it would distribute about $22.7 billion in Associates shares to its holders of Ford common and Class B stock, and $3.1 billion in cash to shareholders who hold Ford stock in U.S. employee savings accounts. According to market observers who track Ford operations, the spin- off is one of several moves Ford has taken to increase shareholder value by selling off nonautomotive assets, moves that included the initial public offering in April 1999 of Hertz Corporation. Ford said that it will take a one- time, noncash, nontaxable gain of about $16.5 billion in the first quarter as a result of the spin- off. What tax issues should the parties to the divisive transaction consider?

Baxter Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $500,000 to Duke Corporation for 90% of Duke's single class of stock worth $500,000. The Duke stock is then exchanged for Frank's 50% interest in Baxter Corporation. Frank's basis in the Baxter stock he surrenders is $120,000. What is Frank's basis in the Duke stock he receives?

A Type C reorganization is a change in identity, legal form, or state of incorporation in which the shareholders retain the same equity interest.

Identify which of the following statements is false.

In a nontaxable reorganization, shareholders of the target corporation recognize gain or loss.