Exam 7: Corporations: Reorganizations

Gnat Corporation and Catcher Corporation would like to merge into one company. Gnat has a net value of $700,000 and Catcher's net value is $300,000. They were considering creating a new corporation called GnatCatcher, but Catcher owns valuable patents that cannot be transferred. Therefore, Gnat will transfer all of its assets to Catcher in exchange for 70% of its stock. Gnat will then liquidate by exchanging the Catcher stock with its shareholders for their stock in Gnat. Which, if any, of the following statements is correct?

Which of the following statements is true regarding "Type A" reorganizations?

Target shareholders recognize gain or loss when they receive assets (boot) as well as stock in the acquiring corporation in a transaction meeting the § 368 requirements.

A tax avoidance motive is essential in establishing a sound business purpose for a reorganization.

In a(n) ____________________ reorganization, the acquiring corporation transfers its assets to the target for at least ____________________ percent of the target stock.

If the acquiring corporation purchased 25% of target stock for cash ten years ago, the acquiring corporation can still meet the "Type C" reorganization requirement that 80% of the target's assets be acquired with stock.

The amount of gain recognized by a shareholder in a corporate reorganization is based on the shareholder's proportionate share of E & P.

One advantage of acquiring a corporation with losses is that after a tax-free reorganization, the remaining corporation may combine the negative earnings and profits (E & P) of the target corporation with positive E & P of the acquiring corporation.

Originally, the Supreme Court decided that corporate reorganizations were substantially continuations of the prior entities and thus should not be subject to taxation.

Crested Serpent Eagle (CSE) Corporation is owned by Lin Yuan and Yu Chi. It has been in the manufacturing and lumber businesses for 20 years. For liability protection, the manufacturing assets of CSE are transferred to Serpent Corporation for all of its stock. This stock is distributed to Lin Yuan in exchange for her CSE stock. The lumber assets are transferred to Eagle Corporation for all of its stock. Yu Chi receives the Eagle stock in exchange for his CSE shares. CSE then terminates.

For a capital restructuring to qualify as a "Type E," there must be at least a 50% change in the common stock ownership.

To qualify as a "Type A" reorganization, mergers must comply with the requirements of pertinent foreign, state, and Federal statutes.

The continuity of interest requires that all target shareholders receive some acquiring stock.

In which type of corporate reorganization do shareholders receive stock in at least two other corporations, in exchange for all of the stock in the original corporation?

In an acquisitive "Type D" reorganization, substantially all of the target corporation's assets must be transferred to the acquiring corporation for stock amounting to at least 50% of the total acquiring stock.

The application of the § 382 limitation to credits requires determining the income tax reduction benefit when applying the § 382 limitation to deductions.

For corporate restructurings, meeting the § 368 reorganization "Type" requirements is all that needs to be considered when planning the structure of the transaction.

Liabilities generally are not considered boot in corporate reorganizations except in a "Type C" when cash or other property is also used in the transaction.

Individual shareholders would prefer to have a gain on a corporate reorganization treated as a capital gain rather than as a dividend, because they can reduce the amount taxable by their basis in the stock involved.

The tax treatment of the parties involved in a tax-free reorganization almost exactly parallels the treatment under the like-kind exchange provisions. When ____________________ is received, gain may be ____________________ and losses are ____________________.