Exam 7: Corporate Acquisitions and Reorganizations

As part of a plan of corporate reorganization, Sally exchanged 1,000 shares of Tone Corporation common stock that she had purchased for $85,000, for 3,000 shares of Fade Corporation voting common stock having an $87,000 FMV. What is the amount and character of Sally's recognized gain and her basis in the Tone stock as a result of the exchange?

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Question 1

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Her realized gain is $2,000 ($87,000 - $85,000). Since no boot is received, her recognized gain is zero. She has an $85,000 basis for her Fade stock. This basis (as well as her holding period)carries over from her Tone stock.

Town Corporation acquires all of the stock of Country Corporation in June in exchange for Town voting common stock. Both Town and Country use a calendar year as their tax year. In the following January, Country pays all of its liabilities and distributes its remaining assets to Town pursuant to its liquidation. These assets consist of $50,000 in cash and land having a $30,000 FMV and a $10,000 basis to Country. Upon distribution of Country's assets to Town, all of Country's capital stock is canceled. Town's basis for the Country stock prior to the liquidation was $57,000. What is the amount and character of Town's recognized gain on receipt of Country's assets pursuant to the liquidation?

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The liquidation may be considered to be part of a Type C reorganization by the IRS (Rev. Rul. 67-274)if the stock acquisition and liquidation are considered to be part of a single plan. As a result, no gain or loss is recognized by either Town or Country on the liquidation. Town's basis for the assets would be $60,000 ($50,000 + $10,000). If they are not part of an integrated plan, the liquidation would still qualify as tax-free under Sec. 332. The cash and land would be received tax-free by Town and have the same $60,000 basis on Town's books that they had on Country's books. This amount is also the same as if received in a Type C reorganization.

Acme Corporation acquires Fisher Corporation's assets in a Type A reorganization for $800,000 of Acme's nonvoting preferred stock and $200,000 (face amount and FMV)of securities. The assets have an adjusted basis of $600,000 and an FMV of $1,500,000. In addition, Acme Corporation assumes $500,000 of Fisher's liabilities. At the time of the transfer, Acme's E&P is $400,000. Fisher distributes the stock and securities to its sole shareholder Barbara for all of her Fisher stock. After the reorganization, Barbara owns 25% of Acme's stock. Barbara has an adjusted basis of $400,000 in her Fisher stock. Barbara must recognize a gain of

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Acme Corporation acquires Fisher Corporation's assets in a Type A reorganization for $800,000 of Acme's nonvoting preferred stock and $200,000 (face amount and FMV)of securities. The assets have an adjusted basis of $600,000 and an FMV of $1,500,000. In addition, Acme Corporation assumes $500,000 of Fisher's liabilities. At the time of the transfer, Acme's E&P is $400,000. Fisher distributes the stock and securities to its sole shareholder Barbara for all of her Fisher stock. After the reorganization, Barbara owns 25% of Acme's stock. Barbara has an adjusted basis of $400,000 in her Fisher stock. Barbara's basis for her Acme securities is

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Question 4

Jersey Corporation purchased 50% of Target Corporation's single class of stock on June 1 of this year. They purchased an additional 40% on November 20 of this year. The Sec. 338 election must be made on or before

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Question 5

Roby Corporation, a Tennessee corporation, decides to change its state of incorporation to Delaware to take advantage of its more favorable state corporation laws. Roby Corporation can take advantage of the Type F reorganization rules by

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Question 6

Discuss the advantages and disadvantages of a tax-free reorganization as compared with a taxable transaction.

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Question 7

Broom Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $400,000 to Docker Corporation in exchange for $400,000 of Docker Corporation stock as part of a tax-free reorganization. The Docker stock had been purchased from its shareholders one year earlier for $350,000. How much gain do Broom and Docker Corporations recognize on the asset transfer?

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Question 8

Midnight Corporation transferred part of its assets to Noon Corporation in exchange for all of Noon's stock. Midnight distributed all of Noon's stock pro rate to Midnight's shareholders. What is this type of reorganization?

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Question 9

In a triangular Type A merger, the acquiring subsidiary corporation must obtain substantially all of the target corporation's assets.

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Question 10

Parent Corporation purchases all of Target Corporation's stock for $200,000 and makes a deemed liquidation election. Target Corporation has Class I assets with an adjusted basis of $55,000 and an FMV of $55,000; Class II assets with an adjusted basis of $40,000 and an FMV of $60,000; and Class V assets with an adjusted basis of $70,000 and an FMV of $100,000. The Class V assets are subject to a $20,000 liability. Assume a 34% corporate tax rate. Assuming that the adjusted grossed-up basis is $237,000 ($200,000 + $20,000 + $17,000 federal income taxes), what is the allocation of adjusted grossed-up basis to Class VI assets?

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Question 11

Martha owns Gator Corporation stock having an adjusted basis of $21,000. As part of a tax-free reorganization involving Gator and Baker Corporations, Martha exchanges her Gator stock for $18,000 of Baker stock and $6,000 (face amount and FMV)of Baker securities. What is Martha's basis in the Baker stock?

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Question 12

Marty is a party to a tax-free reorganization. He has a basis of $22,000 in his Van Corporation stock that has an FMV of $35,000. Marty exchanges the Van stock for Young Corporation stock worth $29,000 and Young securities with a face amount of $7,000 and an FMV of $6,000. What is Marty's basis in the Young securities?

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Question 13

The acquiring corporation does not recognize gain or loss in a reorganization where it receives boot.

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Question 14

In which of the following reorganizations does the distributing corporation transfer all of its assets to two controlled corporations before the distributing corporation dissolves?

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Question 15

Grant Corporation transfers highly appreciated stock to Subsidiary Corporation in exchange for all of its stock. The Subsidiary Corporation stock is distributed to its sole shareholder, Peter. Three weeks after the distribution of the Subsidiary stock, Subsidiary Corporation liquidates. Peter then sells the appreciated stock that he received in the liquidation. This series of transactions

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Question 16

The assets of Bold Corporation have a $1,000,000 basis and a $3,000,000 FMV. Its liabilities are $500,000. Tidel Corporation acquires 80% of the Bold Corporation stock for $2,000,000. What gain is recognized by Bold Corporation if a timely Sec. 338 election is made by Tidel Corporation? What is the total basis of the assets to Bold Corporation following the deemed sale? Assume a 34% corporate tax rate.

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Question 17

If the FMV of the stock received in a Type E reorganization does not equal the FMV of the stock surrendered, the difference may be

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Question 18

When gain is realized by a target corporation from disposing of its assets in a tax-free reorganization, the gain is

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Question 19

Identify which of the following statements is false.

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Question 20

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Jersey Corporation purchased 50% of Target Corporation's single class of stock on June 1 of this year. They purchased an additional 40% on November 20 of this year. The Sec. 338 election must be made on or before

Roby Corporation, a Tennessee corporation, decides to change its state of incorporation to Delaware to take advantage of its more favorable state corporation laws. Roby Corporation can take advantage of the Type F reorganization rules by

Discuss the advantages and disadvantages of a tax-free reorganization as compared with a taxable transaction.

Midnight Corporation transferred part of its assets to Noon Corporation in exchange for all of Noon's stock. Midnight distributed all of Noon's stock pro rate to Midnight's shareholders. What is this type of reorganization?

In a triangular Type A merger, the acquiring subsidiary corporation must obtain substantially all of the target corporation's assets.

The acquiring corporation does not recognize gain or loss in a reorganization where it receives boot.

In which of the following reorganizations does the distributing corporation transfer all of its assets to two controlled corporations before the distributing corporation dissolves?

If the FMV of the stock received in a Type E reorganization does not equal the FMV of the stock surrendered, the difference may be

When gain is realized by a target corporation from disposing of its assets in a tax-free reorganization, the gain is

Identify which of the following statements is false.

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