Exam 7: Corporations: Reorganizations

Since the "Type B" reorganization precludes the use of ____________________, gain or loss is not recognized. In this type of reorganization, a ____________________ relationship between the acquiring and target corporations is created.

In a "Type A" merger, the acquiring corporation may select which liabilities of the target it assumes, but in a "Type A" consolidation, all of the liabilities (known and contingent) must be assumed by the new corporation.

In corporate reorganizations, if an acquiring corporation is using property other than stock as consideration, it may recognize gains but not losses on the transaction.

Pallid Swift, Inc., is an S corporation located in Colorado. In the past year, PallidSwift has become profitable; but due to its rapid growth, Pallid Swift has no excess cash for distributions. Therefore, Pallid Swift decides that it should become a C corporation.

Korat Corporation and Snow Corporation enter into an acquisitive "Type D" reorganization. Xin currently holds a 20-year, $10,000 Snow bond paying 4% interest. There are 8 years until the bond matures. In exchange for his Snow bond, Xin receives an 8 year $16,000 Korat bond paying 2.5% interest. Xin thinks this is fair because he will still receive $400 of interest each year and both bonds mature on the same date. How does Xin treat this transaction on his tax return?

When the § 382 limitation is evoked, the acquiring corporation is limited in its use of the tax loss carryover of the loss corporation. The limitation is based on the net present value of the loss corporation using the Federal long-term discount rate.