Exam 7: Corporations: Reorganizations

Heart Corporation has net assets valued at $1 million and an NOL of $250,000. On December 31 of last year, Heart is acquired by Brain Corporation, a calendar year taxpayer, in a restructuring qualifying as a tax-free reorganization. Heart shareholders receive 45% of Brain's shares in exchange for all of the Heart stock. Assuming that the Federal long-term tax-exempt rate is 5% and Brain's discount factor is 10%, what is the maximum amount that Brain can use of Heart's NOL this year?

All of the following statements are true about corporate reorganization except:

Burmese Corporation is interested in acquiring Javanese Corporation by transferring 30% of its stock for all of Javanese's assets valued at $500,000 (basis of $150,000) and its $200,000 of liabilities. Javanese has created $50,000 in general business research credits which it cannot use. Javanese concentrates on pharmaceutical research whereas Burmese manufactures sun glasses. Burmese uses a discount factor of 8% and the Federal applicable rate is 4%. Javanese will terminate after the restructuring. How will this transaction be treated for tax purposes?

The acquiring corporation in a "Type G" reorganization reduces the tax attributes carried over from the bankrupt corporation by the percentage in change in ownership.

The distinguishing characteristic of a "Type D" reorganization is the acquiring corporation is the one transferring assets to the target corporation in exchange for a controlling interest in the target.

The Federal income tax treatment of a corporate restructuring is an extension of allowing entities to form without taxation.

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

Angus Corporation purchased 15% of Hereford Corporation 4 years ago for $150,000. Angus acquires 75% more of Herford's stock directly from the Hereford shareholders in an exchange for 25% of the Angus common stock currently outstanding. There is still 10% of the Hereford stock held by its original shareholders as they are not interested in being common shareholders of Angus. This transaction qualifies as what type of reorganization?

The continuity of business enterprise requires that at least 40% of the target's assets are acquired with stock.

Ula purchased stock in Purple, Inc., 6 years ago for $150,000. Purple has assets with a value of $225,000 ($175,000 basis) and liabilities of $60,000. Purple transfers $200,000 of assets and all of its liabilities to White Corporation in exchange for White common stock. Purple distributes the White stock and its $25,000 remaining asset (cash) to Ula in exchange for all of her Purple stock. Purple then liquidates. How is this transaction treated for tax purposes?

Besides the statutory requirements for tax-free treatment for corporate reorganizations, there are several judicial requirements. Which of the following is not a judicial requirement for corporate reorganizations?

Saucer Corporation has a value of $800,000, basis in its assets of $670,000, and liabilities of $200,000. Cup Corporation acquires 90% of Saucer's assets by exchanging $550,000 of its voting stock, $20,000 cash, and assuming $150,000 of Saucer's liabilities. The remaining 10% of Saucer's assets not acquired is $80,000 cash. Saucer distributes the Cup stock, $100,000 in cash and associated $50,000 in liabilities to its shareholder, Sam, in exchange for his Saucer stock (basis $560,000). Saucer then liquidates. How will this transaction be treated for tax purposes?

Which of the following statements regarding the applicability of the judicial doctrines to a "Type G" reorganization is correct?

Which of the following statements is true?

Loss Corporation carries over an NOL, business credits, built-in ordinary losses, and capital losses. The § 382 limitation is applied to these carryover attributes in the following order: ____________________, ____________________, ____________________, ____________________.

Bobcat Corporation redeems all of Zed's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash. Zed's basis in his 20% interest in Bobcat is $100,000 and the stock's value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $200,000 and of Van are $75,000. How does Zed treat this transaction for tax purposes?

Which of the following statements is true concerning all types of tax-free corporate reorganizations?

Cuckoo Corporation has just lost a $500,000 product liability suit. Before the lawsuit, its assets were valued at $600,000 (basis of $400,000), and it had general liabilities of $300,000 and $100,000 of bonds outstanding. It also has a $50,000 capital loss carryover, $10,000 general business credits, and $150,000 NOL. Cuckoo is solely owed by Emmy Lou. A state restructuring creates Turaco as the successor company to Cuckoo. Which of the following statements is false?

____________________ is other property received along with stock in a restructuring falling under § 368. If the shareholders receive the other property, it can be taxed as ____________________ and/or ____________________.

Obtaining a positive letter ruling from the IRS can ensure the desired tax treatment for parties contemplating a corporate reorganization.