Exam 7: Corporations: Reorganizations

In a divisive "Type D" reorganization, the distributing corporation obtains control of the new target by exchanging some of its assets for at least 80% of the new target's outstanding stock.

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?

Peony owns all of the Garden Corporation common stock with a basis of $400,000 and a value of $900,000. Her grandchildren own nonvoting preferred stock with a basis and value of $540,000 that pays a 6% annual dividend. Peony would like to transfer her ownership of Garden to her grandchildren but retain a guaranteed income from Garden. What would be the most tax effective method of making this transfer?

Liabilities are problematic only in the reorganization when the corporation transfers other property boot) as well as stock to the target.

Federal bankruptcy legislation created the reorganization. To qualify for this type of reorganization, the corporation must be before the reorganization.

All the following should apply to a tax favored corporate restructuring except:

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

For a corporate restructuring to qualify as a tax-free reorganization, the step transaction doctrine must apply.

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 _.

Spoonbill Corporation has assets with a FMV of $800,000 and adjusted basis of $600,000. It has been manufacturing engineering equipment and laboratory tools for the last eight years. Spoonbill forms a new corporation, Roseate Corporation, by acquiring all of its stock in exchange for the laboratory tool division of Spoonbill. Each of the Spoonbill shareholders receives 1 share of Roseate stock for each 50 shares they own in Spoonbill. How will this transaction be treated for Federal income tax purposes?

Match the following items with the statements that follow. Terms may be used more than once. -Tax avoidance is not enough; transaction must have a corporate economic consequence.

Target sells assets not desired by Acquirer before entering into a reorganization transaction with Acquirer. In which reorganization will the step transaction doctrine not apply to the sale by Target?

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?

Changing from an S corporation to a C corporation is a reorganization.

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

Which of the following statements is false?

Flower Corporation has two divisions that it has operated for the last 10 years: Gerbera with a value of $806,000 basis $400,000) and Daisy with a value of $744,000 basis 800,000). While Gerbera is profitable, Daisy continues to incur losses and created a $350,000 NOL for Flower two years ago. Flower has decided this year it would like to become two corporations: Gerbera and Daisy. Which of the following is the best method for Flower to become two corporations?

Long Corporation has $500,000 of assets with a basis of $350,000 and liabilities of $125,000. ShortCo acquires Long's assets and $100,000 of liabilities by exchanging $400,000 of its voting stock. Long distributes the ShortCo stock and remaining liabilities to its shareholder in exchange for the shareholder's Long stock with a basis of $275,000 and then it liquidates. Which, if any, of the following statements is correct?

Match the following items with the statements that follow. Terms may be used more than once. -Any asset other than stock or securities received by the target shareholders.

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