Exam 7: Corporations: Reorganizations

Acquiring Corporation transfers $500,000 stock and land with a value of $400,000 basis of $250,000) to Target for most of its assets. The assets not acquired in the "Type A" reorganization are distributed to Target's shareholder, Tia. They are valued at $100,000 basis of $120,000). Acquiring stock and the land also are distributed to Tia in exchange for her stock in Target. Tia's basis in her stock is $650,000. What is the gain or loss recognized by Acquiring, Target, and Tia on this restructuring? What is Tia's basis in the Acquiring stock?

The term "reorganization" refers to any restructuring that will be tax-free under Code section _________________________.

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.

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

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.

Compare the consideration that can be used in "Type A," "Type B," and "Type C" reorganizations.

Without evidence to the contrary, the IRS views transactions occurring within one year of a reorganization as part of the restructuring under the step transaction doctrine.

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

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

When a corporation has cancellation-of-debt relief in a "Type G" reorganization, the corporation reduces its benefits in tax items such as earnings and profits.

An exchange of common stock for preferred stock or bonds for preferred stock can qualify as a "Type E" reorganization.

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?

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 their Somali stock. After the exchange, Somali liquidates. The exchange qualifies as what type of transaction?

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?

On March 1, Cream Corporation transfers all of its assets to Coffee Corporation in exchange for 10% of its common voting stock. At the time of the reorganization, Cream has assets valued at $4 million basis of $3 million), and its earnings and profits account shows a deficit of $650,000. Coffee's earnings and profits as of March 1 were $420,000. Due to the reorganization, Coffee has an NOL for the current year of $150,000. Coffee still declares its usual dividends of $100,000 paid on April 30, August 31, and December 31 $300,000 of total dividends). How are the Coffee shareholders taxed on the distribution?

Match the following items with the statements that follow. Terms may be used more than once. -When the transactions are so interdependent that the accomplishment of one would be fruitless without the completion of the series.

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

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

Gato Corporation exchanged 25% of its stock with Lobo for all of its assets. The Gato stock was distributed to the Lobo shareholders in exchange for all of their stock. Lobo then liquidated. At the time of the acquisition by Gato, the value of Lobo was $3 million, and the Federal long-term tax-exempt rate was 4%. In the current year, Gato has $500,000 of taxable income. Lobo has excess credits from prior years amounting to $150,000. What amount of Lobo's credits may Gato use in computing its Federal income tax for the year if Gato is in the 21% tax bracket?

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