Question 1

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

Accepted Answer

A) The continuity of interest doctrine is applied to the creditors rather than the shareholders. 
B) The sound business purpose doctrine does not apply because the restructuring is dictated by state proceedings. 
C) The continuity of business enterprise doctrine does not apply because the transaction is a bankruptcy. 
D) The step transaction doctrine presents a problem, because a "Type G" reorganization make take an extended period of time to complete. 
E) All of the above. 
A) The continuity of interest doctrine is applied to the creditors rather than the shareholders. 
B) The sound business purpose doctrine does not apply because the restructuring is dictated by state proceedings. 
C) The continuity of business enterprise doctrine does not apply because the transaction is a bankruptcy. 
D) The step transaction doctrine presents a problem, because a "Type G" reorganization make take an extended period of time to complete. 
E) All of the above. A

Question 2

In a ____________________ reorganization, shareholders may exchange preferred stock for common or common for preferred stock.

Accepted Answer

Type E

Question 3

Match the following items with the statements below. Terms may be used more than once.
-Carries over to new corporations in a split-up reorganization.

Accepted Answer

A) Boot 
B) Business credits 
C) Capital gain 
D) Continuity of business enterprise 
E) Continuity of interest
F)Dividend
G)Discount rate
H)Earnings and profits
I)​Federal long-term tax-exempt rate
J)Liability assumption
K)Ordinary gain
L)Ownership change
M)Section 382 limitation​
N)Sound business purpose
O)Step transaction 
A) Boot 
B) Business credits 
C) Capital gain 
D) Continuity of business enterprise 
E) Continuity of interest
F)Dividend
G)Discount rate
H)Earnings and profits
I)​Federal long-term tax-exempt rate
J)Liability assumption
K)Ordinary gain
L)Ownership change
M)Section 382 limitation​
N)Sound business purpose
O)Step transaction H

Question 4

Match the following items with the statements below. Terms may be used more than once.
-Acquiring Corporation receives all of the assets of Target Corporation in exchange for 1,000 preferred shares and 6,000 common shares of Acquiring, $25,000 cash, and assumption of all the liabilities of Target. After distributing the Acquiring stock and cash to its shareholders, Target liquidates.

Accepted Answer

A) Boot 
B) Business credits 
C) Capital gain 
D) Continuity of business enterprise 
E) Continuity of interest
F)Dividend
G)Discount rate
H)Earnings and profits
I)​Federal long-term tax-exempt rate
J)Liability assumption
K)Ordinary gain
L)Ownership change
M)Section 382 limitation​
N)Sound business purpose
O)Step transaction 
A) Boot 
B) Business credits 
C) Capital gain 
D) Continuity of business enterprise 
E) Continuity of interest
F)Dividend
G)Discount rate
H)Earnings and profits
I)​Federal long-term tax-exempt rate
J)Liability assumption
K)Ordinary gain
L)Ownership change
M)Section 382 limitation​
N)Sound business purpose
O)Step transaction

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Present Value Tables needed for this question. Tony is the sole shareholder of Create Corporation. Tony is a chemical engineer and has been working hard to create a unique product but has been unsuccessful. Thus, Create has accumulated an NOL of $240,000. This year she finally finds the right combination for a new cleaning product.
​
Predicting that Create will be very profitable next year, Create borrows $250,000 to pay Tony the salary she rightly deserves. Next year, Create does become profitable, earning $100,000 before application of carryovers. Mega Corporation, a huge ($50 million value, 35% tax bracket) competitor, offers to purchase the patent from Tony for $750,000.
​
Knowing that the Create's NOL should be useful to Mega, Tony suggests a restructuring where she receives $500,000 in Mega stock, Mega assumes all of Create's liabilities ($250,000), plus $75,000 cash for the NOL. Mega counter offers with cash for the NOL (to be determined), and $750,000 of stock. It will not assume any liabilities. How much would be the maximum cash offered by Mega for the NOL, assuming that Mega uses an 11% discount factor and the Federal long-term tax-exempt rate is 4%? If Tony accepts Mega's offer, what type of reorganization, if any, is this restructuring?

Accepted Answer

Mega should not pay more than $54,033 fo

Question 8

Monal Corporation merged with Bobwhite Corporation two years ago. At the time of the merger, Monal held an earnings and profits (E & P) deficit of $250,000 and Bobwhite had a positive E & P of $200,000. Last year's current E & P was $ 100,000 for the successor company. Despite having only $10,000 E & P for the current year, Monal makes a distribution to its shareholders of $270,000. How is the distribution taxed to the shareholders?

Accepted Answer

A) $270,000 is taxable. 
B) $200,000 is taxable. 
C) $110,000 is taxable. 
D) $50,000 is taxable. 
E) None of the above amounts is correct. 
A) $270,000 is taxable. 
B) $200,000 is taxable. 
C) $110,000 is taxable. 
D) $50,000 is taxable. 
E) None of the above amounts is correct.

Question 9

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?

Accepted Answer

A) As a "Type A" reorganization. Sam recognizes $50,000 of gain and Saucer recognizes $20,000 gain. 
B) As a "Type A" reorganization. Sam recognizes $100,000 gain and Saucer recognizes $120,000 gain. 
C) As a "Type C" reorganization. Sam recognizes $50,000 of gain and Saucer recognizes $20,000 gain. 
D) As a "Type C" reorganization. Sam recognizes $40,000 of gain and Saucer recognizes no gain. 
E) As a taxable transaction. 
A) As a "Type A" reorganization. Sam recognizes $50,000 of gain and Saucer recognizes $20,000 gain. 
B) As a "Type A" reorganization. Sam recognizes $100,000 gain and Saucer recognizes $120,000 gain. 
C) As a "Type C" reorganization. Sam recognizes $50,000 of gain and Saucer recognizes $20,000 gain. 
D) As a "Type C" reorganization. Sam recognizes $40,000 of gain and Saucer recognizes no gain. 
E) As a taxable transaction.

Question 10

Manx Corporation transfers 40% of its stock and $50,000 in cash to Somali Corporation for $500,000 of assets and all $200,000 of its liabilities. Somali exchanges the Manx stock, cash, and its remaining $100,000 of assets with its shareholders for all of their stock in Somali. After the exchange, Somali liquidates. The exchange qualifies as what type of transaction?

Accepted Answer

A) "Type A" reorganization. 
B) "Type B" reorganization. 
C) "Type C" reorganization. 
D) "Type D" reorganization. 
E) A taxable exchange. 
A) "Type A" reorganization. 
B) "Type B" reorganization. 
C) "Type C" reorganization. 
D) "Type D" reorganization. 
E) A taxable exchange.

Question 11

Against the will of Rally Corporation's management, Buoy Corporation offers Rally's shareholders 2 shares of Buoy common stock for each share of Rally common and 50 shares of Buoy common for each share of Rally preferred. The results of a hostile takeover yield Buoy 85% of Rally common stock and 100% of the preferred. The only stock it did not obtain was that owned by management. This transaction qualifies as a(n):

Accepted Answer

A) "Type A" consolidation. 
B) "Type B" reorganization. 
C) "Type C" reorganization. 
D) "Type D" split-up reorganization. 
E) Taxable event. 
A) "Type A" consolidation. 
B) "Type B" reorganization. 
C) "Type C" reorganization. 
D) "Type D" split-up reorganization. 
E) Taxable event.

Question 12

Match the following items with the statements below. Terms may be used more than once.
-Flower Corporation is owned by Carry and Kim. All of Carry's stock (value of $200,000) is exchanged for $200,000 in bonds. Kim exchanges no stock in the transaction.

Accepted Answer

A) Boot 
B) Business credits 
C) Capital gain 
D) Continuity of business enterprise 
E) Continuity of interest
F)Dividend
G)Discount rate
H)Earnings and profits
I)​Federal long-term tax-exempt rate
J)Liability assumption
K)Ordinary gain
L)Ownership change
M)Section 382 limitation​
N)Sound business purpose
O)Step transaction 
A) Boot 
B) Business credits 
C) Capital gain 
D) Continuity of business enterprise 
E) Continuity of interest
F)Dividend
G)Discount rate
H)Earnings and profits
I)​Federal long-term tax-exempt rate
J)Liability assumption
K)Ordinary gain
L)Ownership change
M)Section 382 limitation​
N)Sound business purpose
O)Step transaction

Question 13

The "Type B" reorganization requires a continuity of business interest. Therefore, the acquiring corporation must obtain at least 40% of target corporation's stock through the reorganization.

Accepted Answer

A) True 
 B)False

Question 14

Discuss the treatment of accumulated earnings and profits (E & P) in a corporate reorganization when both corporations have positive E & P and when the target corporation has a negative E & P.

Accepted Answer

The accumulated earnings and profits (E

Question 15

In a ____________________ reorganization, each corporation must obtain the approval of the majority of its shareholders. The acquiring corporation must assume at least ____________________ percent of the target's liabilities.

Accepted Answer

The answer of In a ____________________ reorganization, each corporation must...

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Match the following items with the statements below. Terms may be used more than once.
-Solar currently operates nine lines of business that have been in existence for ten years. To protect its assets from possible lawsuits, Solar transfers each division to newly formed corporations in exchange for all of the stock of the new corporations. Solar distributes the stock in the nine new corporations to its shareholders in exchange for 45% of their stock in Solar.

Accepted Answer

A) Boot 
B) Business credits 
C) Capital gain 
D) Continuity of business enterprise 
E) Continuity of interest
F)Dividend
G)Discount rate
H)Earnings and profits
I)​Federal long-term tax-exempt rate
J)Liability assumption
K)Ordinary gain
L)Ownership change
M)Section 382 limitation​
N)Sound business purpose
O)Step transaction 
A) Boot 
B) Business credits 
C) Capital gain 
D) Continuity of business enterprise 
E) Continuity of interest
F)Dividend
G)Discount rate
H)Earnings and profits
I)​Federal long-term tax-exempt rate
J)Liability assumption
K)Ordinary gain
L)Ownership change
M)Section 382 limitation​
N)Sound business purpose
O)Step transaction

Question 18

The basis for the acquiring corporation in the target's assets is increased by any gain recognized by the target.

Accepted Answer

A) True 
 B)False

Question 19

Match the following items with the statements below. Terms may be used more than once.
-BarkCo and WoodCo contribute all of their assets to Tree Corporation in exchange for all of Tree's stock. BarkCo and WoodCo distribute the Tree stock to their shareholders in exchange for their stock in BarkCo and WoodCo. The exchange completes the liquidation of BarkCo and WoodCo and each ceases to exist.

Accepted Answer

A) Boot 
B) Business credits 
C) Capital gain 
D) Continuity of business enterprise 
E) Continuity of interest
F)Dividend
G)Discount rate
H)Earnings and profits
I)​Federal long-term tax-exempt rate
J)Liability assumption
K)Ordinary gain
L)Ownership change
M)Section 382 limitation​
N)Sound business purpose
O)Step transaction 
A) Boot 
B) Business credits 
C) Capital gain 
D) Continuity of business enterprise 
E) Continuity of interest
F)Dividend
G)Discount rate
H)Earnings and profits
I)​Federal long-term tax-exempt rate
J)Liability assumption
K)Ordinary gain
L)Ownership change
M)Section 382 limitation​
N)Sound business purpose
O)Step transaction

Question 20

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

Accepted Answer

A) True 
 B)False

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

In a ____________________ reorganization, shareholders may exchange preferred stock for common or common for preferred stock.

Match the following items with the statements below. Terms may be used more than once. -Carries over to new corporations in a split-up reorganization.

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.

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

Match the following items with the statements below. Terms may be used more than once. -Flower Corporation is owned by Carry and Kim. All of Carry's stock (value of $200,000) is exchanged for $200,000 in bonds. Kim exchanges no stock in the transaction.

The "Type B" reorganization requires a continuity of business interest. Therefore, the acquiring corporation must obtain at least 40% of target corporation's stock through the reorganization.

Discuss the treatment of accumulated earnings and profits (E & P) in a corporate reorganization when both corporations have positive E & P and when the target corporation has a negative E & P.

In a reorganization, each corporation must obtain the approval of the majority of its shareholders. The acquiring corporation must assume at least percent of the target's liabilities.

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

The basis for the acquiring corporation in the target's assets is increased by any gain recognized by the target.

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

Understanding and Working With the Federal Tax Law

Corporations Introduction and Operating Rules

Corporations Special Situations

Corporations Organization and Capital Structure

Corporations Earnings Profits and Dividend Distributions

Corporations Redemptions and Liquidations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships Formation Operation and Basis

Partnerships Distributions Transfer of Interests and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multi-State Corporate Taxations

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 7: Corporations Reorganizations

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

In a ____________________ reorganization, shareholders may exchange preferred stock for common or common for preferred stock.

Match the following items with the statements below. Terms may be used more than once. -Carries over to new corporations in a split-up reorganization.

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.

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

Match the following items with the statements below. Terms may be used more than once. -Flower Corporation is owned by Carry and Kim. All of Carry's stock (value of $200,000) is exchanged for $200,000 in bonds. Kim exchanges no stock in the transaction.

The "Type B" reorganization requires a continuity of business interest. Therefore, the acquiring corporation must obtain at least 40% of target corporation's stock through the reorganization.

Discuss the treatment of accumulated earnings and profits (E & P) in a corporate reorganization when both corporations have positive E & P and when the target corporation has a negative E & P.

In a ____________________ reorganization, each corporation must obtain the approval of the majority of its shareholders. The acquiring corporation must assume at least ____________________ percent of the target's liabilities.

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

The basis for the acquiring corporation in the target's assets is increased by any gain recognized by the target.

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

Understanding and Working With the Federal Tax Law

Corporations Introduction and Operating Rules

Corporations Special Situations

Corporations Organization and Capital Structure

Corporations Earnings Profits and Dividend Distributions

Corporations Redemptions and Liquidations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships Formation Operation and Basis

Partnerships Distributions Transfer of Interests and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multi-State Corporate Taxations

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

In a reorganization, each corporation must obtain the approval of the majority of its shareholders. The acquiring corporation must assume at least percent of the target's liabilities.