Question 1

Identify which of the following statements is true.

Accepted Answer

A) A Type B reorganization must be accomplished in one transaction. 
B) "Creeping acquisitions" are not allowed in a Type B reorganization. 
C) Boxer Corporation acquires 81% of Excel Corporation's stock in a Type B reorganization. When Boxer Corporation acquires an additional 11% of Excel Corporation's stock two years later in exchange for Boxer stock, the second acquisition is also treated as a Type B reorganization. 
D) All of the above are false. 
A) A Type B reorganization must be accomplished in one transaction. 
B) "Creeping acquisitions" are not allowed in a Type B reorganization. 
C) Boxer Corporation acquires 81% of Excel Corporation's stock in a Type B reorganization. When Boxer Corporation acquires an additional 11% of Excel Corporation's stock two years later in exchange for Boxer stock, the second acquisition is also treated as a Type B reorganization. 
D) All of the above are false.

Question 2

Which one of the following is not a corporate reorganization as defined in the Internal Revenue Code?

Accepted Answer

A) recapitalization 
B) mere change in identity 
C) merger 
D) stock redemption 
A) recapitalization 
B) mere change in identity 
C) merger 
D) stock redemption

Question 3

Identify which of the following statements is true.

Accepted Answer

A) Ann, Dewey Corporation's sole shareholder, exchanges her Dewey stock having a $400,000 FMV and a $175,000 adjusted basis for $350,000 of Heider Corporation stock and $50,000 cash. Ann realizes a $225,000 gain on the stock transfer, none of which is recognized. 
B) A Type B reorganization can be accomplished without formal shareholder approval. 
C) The target corporation's tax attributes are lost in a Type B reorganization. 
D) All of the above are false. 
A) Ann, Dewey Corporation's sole shareholder, exchanges her Dewey stock having a $400,000 FMV and a $175,000 adjusted basis for $350,000 of Heider Corporation stock and $50,000 cash. Ann realizes a $225,000 gain on the stock transfer, none of which is recognized. 
B) A Type B reorganization can be accomplished without formal shareholder approval. 
C) The target corporation's tax attributes are lost in a Type B reorganization. 
D) All of the above are false.

Question 4

In Fall 1999, Ford Motor Company's board of directors announced the $25.8 billion spin-off of its 80.7% interest in the Associated First Capital Corporation finance unit to the Ford shareholders. Ford said that it would distribute about $22.7 billion in Associates shares to its holders of Ford common and Class B stock, and $3.1 billion in cash to shareholders who hold Ford stock in U.S. employee savings accounts. According to market observers who track Ford operations, the spin-off is one of several moves Ford has taken to increase shareholder value by selling off nonautomotive assets, moves that included the initial public offering in April 1999 of Hertz Corporation. Ford said that it will take a one-time, noncash, nontaxable gain of about $16.5 billion in the first quarter as a result of the spin-off. What tax issues should the parties to the divisive transaction consider?

Accepted Answer

The following issues need to be addresse

Question 5

Identify which of the following statements is false.

Accepted Answer

A) Taxable acquisition transactions can either be a purchase of assets or a purchase of stock. 
B) The tax-free reorganization rules are an example of the wherewithal to pay concept. 
C) A taxable acquisition of a target corporation's assets results in the nonrecognition of gain or loss on the disposition of each individual asset. 
D) Sales of depreciable assets as part of a taxable acquisition result in depreciation recapture. 
A) Taxable acquisition transactions can either be a purchase of assets or a purchase of stock. 
B) The tax-free reorganization rules are an example of the wherewithal to pay concept. 
C) A taxable acquisition of a target corporation's assets results in the nonrecognition of gain or loss on the disposition of each individual asset. 
D) Sales of depreciable assets as part of a taxable acquisition result in depreciation recapture.

Question 6

Buddy owns 100 of the outstanding shares of Binder Corporation stock. Buddy's basis in his Binder Corporation stock is $100,000. Binder Corporation is merged with Clipper Corporation in a tax-free reorganization. Buddy receives 50 shares of Clipper stock worth $150,000 and $150,000 cash. The remaining 100 shares of Binder stock were owned by Bruce who received the same consideration for his Binder stock. Binder and Clipper have E&P balances of $250,000 and $500,000, respectively. Buddy and Bruce each own 25% of Clipper Corporation's 200 shares of stock after the reorganization. Which of the following is correct?

Accepted Answer

A) Buddy recognizes $200,000 as dividend income. 
B) Buddy recognizes $200,000 as a capital gain. 
C) Buddy recognizes $150,000 as dividend income. 
D) Buddy recognizes $150,000 as a capital gain. 
A) Buddy recognizes $200,000 as dividend income. 
B) Buddy recognizes $200,000 as a capital gain. 
C) Buddy recognizes $150,000 as dividend income. 
D) Buddy recognizes $150,000 as a capital gain.

Question 7

Identify which of the following statements is false.

Accepted Answer

A) In a Type C reorganization, the acquired corporation must distribute stock, securities, and other property it receives to its shareholders. 
B) A Type C reorganization is less flexible than a Type A reorganization because of the solely-for-voting stock requirement of a Type C. 
C) To qualify as a Type C reorganization, the target corporation must be formally dissolved. 
D) In a Type C reorganization, shareholders of the acquiring corporation generally do not have to approve the acquisition. 
A) In a Type C reorganization, the acquired corporation must distribute stock, securities, and other property it receives to its shareholders. 
B) A Type C reorganization is less flexible than a Type A reorganization because of the solely-for-voting stock requirement of a Type C. 
C) To qualify as a Type C reorganization, the target corporation must be formally dissolved. 
D) In a Type C reorganization, shareholders of the acquiring corporation generally do not have to approve the acquisition.

Question 8

Grand Corporation transfers 40% of its assets having an adjusted basis of $600,000 and an FMV of $800,000 to New Corporation in exchange for 75% of its single class of stock. Grand Corporation is owned equally by Annie and Betsy who are unrelated. Annie's basis for her Grand stock is $300,000 and Betsy's basis is $400,000. Annie exchanges all of her Grand stock for all of the New stock received in the exchange. Which of the following statements is correct concerning these transactions?

Accepted Answer

A) Grand Corporation does not recognize a gain on the asset transfer to New Corporation or the stock distribution to Annie. 
B) Annie recognizes a $500,000 capital gain on the exchange of the Grand stock for the New stock. 
C) Annie's basis in the New stock is $300,000. 
D) Grand's basis for the New assets is $600,000. 
A) Grand Corporation does not recognize a gain on the asset transfer to New Corporation or the stock distribution to Annie. 
B) Annie recognizes a $500,000 capital gain on the exchange of the Grand stock for the New stock. 
C) Annie's basis in the New stock is $300,000. 
D) Grand's basis for the New assets is $600,000.

Question 9

Identify which of the following statements is true.

Accepted Answer

A) Per IRS Treasury Regulations, to qualify as a Type A reorganization, at least 40% of the total consideration used must be acquiring corporation stock. 
B) A Type A reorganization has the advantage of avoiding the acquisition of unknown and contingent liabilities. 
C) A merger usually involves the approval of all of the shareholders of both corporations. 
D) All of the above are false. 
A) Per IRS Treasury Regulations, to qualify as a Type A reorganization, at least 40% of the total consideration used must be acquiring corporation stock. 
B) A Type A reorganization has the advantage of avoiding the acquisition of unknown and contingent liabilities. 
C) A merger usually involves the approval of all of the shareholders of both corporations. 
D) All of the above are false.

Question 10

In a nontaxable reorganization, the holding period for the stock received by the target shareholders includes the holding period of the stock surrendered.

Accepted Answer

A) True 
 B)False

Question 11

Identify which of the following statements is true.

Accepted Answer

A) Acquisition of the stock of a target corporation in a taxable acquisition transaction is reflected in an increased basis for the target corporation's assets on its books. 
B) Acquisition of 100% of the stock of a target corporation in a taxable transaction followed by a tax-free liquidation of the target corporation permits a step-up in the basis of the target corporation's assets to their FMV. 
C) Usually when 100% of the stock of a target corporation is purchased by an acquiring corporation, the basis of the assets of the target corporation reflects the purchase price of the target stock. 
D) All of the above are false. 
A) Acquisition of the stock of a target corporation in a taxable acquisition transaction is reflected in an increased basis for the target corporation's assets on its books. 
B) Acquisition of 100% of the stock of a target corporation in a taxable transaction followed by a tax-free liquidation of the target corporation permits a step-up in the basis of the target corporation's assets to their FMV. 
C) Usually when 100% of the stock of a target corporation is purchased by an acquiring corporation, the basis of the assets of the target corporation reflects the purchase price of the target stock. 
D) All of the above are false.

Question 12

The Supreme Court has held that literal compliance with the statutory requirements for a reorganization transaction is not enough for a transaction to receive tax-free treatment. The courts have placed four primary restrictions on reorganization transactions. What are they?

Accepted Answer

• Continuity of the investor's proprieta

Question 13

Identify which of the following statements is true.

Accepted Answer

A) A plan of reorganization must be a written document. 
B) Advance rulings are required for all reorganizations. 
C) The IRS will issue an advance ruling on any proposed tax-free reorganization. 
D) All of the above are false. 
A) A plan of reorganization must be a written document. 
B) Advance rulings are required for all reorganizations. 
C) The IRS will issue an advance ruling on any proposed tax-free reorganization. 
D) All of the above are false.

Question 14

Pacific Corporation acquires 80% of the stock of Jackson Corporation for $3,000,000 in the current year. Jackson's assets have a basis of $2,000,000 and its liabilities are $800,000. The assets are worth $3,500,000. What gain is recognized by Jackson Corporation on the deemed sale of its assets if a Sec. 338 election is made?

Accepted Answer

FMV of $3,500,000 le

Question 15

Advance rulings are required for all reorganizations.

Accepted Answer

A) True 
 B)False

Question 16

A stock acquisition that is not treated as a purchase for purposes of meeting the Sec. 338 rules is

Accepted Answer

A) stock whose adjusted basis is determined by its basis in the hands of the person from whom it was acquired. 
B) stock acquired from a decedent. 
C) stock acquired in a tax-free reorganization. 
D) All of the above are correct. 
A) stock whose adjusted basis is determined by its basis in the hands of the person from whom it was acquired. 
B) stock acquired from a decedent. 
C) stock acquired in a tax-free reorganization. 
D) All of the above are correct.

Question 17

Johnson Co. transferred part of its assets to Alive Corporation in exchange for all of Alive's stock. The Alive stock received for the assets was distributed to the Johnson shareholders. What tax issues should the parties to the divisive reorganization consider?

Accepted Answer

The following points should be addressed

Question 18

An acquiring corporation must use the acquisition method for financial statement purposes whether the business combination is a taxable purchase or a nontaxable reorganization.

Accepted Answer

A) True 
 B)False

Question 19

Dreyer Corporation purchased 5% of Willy Corporation's stock five years ago for $100,000. Dreyer then decides to purchase an additional 80% of the Willy stock for $1,000,000 on April 15 of the current year. On the acquisition date, Willy Corporation's liabilities are $150,000. A $300,000 tax liability is incurred by Willy on the Sec. 338 deemed sale. What is the total basis of Willy Corporation's assets for Sec. 338 basis allocation purposes?

Accepted Answer

Grossed-up basis of recently purchased s

Question 20

In a Sec. 338 election, the target corporation

Accepted Answer

A) will have a holding period for assets beginning on the day after the acquisition date. 
B) must use the preacquisition tax year. 
C) will no longer file a separate return. 
D) is considered to be a continuation of the old target corporation for purposes of the tax attribute carryover rules. 
A) will have a holding period for assets beginning on the day after the acquisition date. 
B) must use the preacquisition tax year. 
C) will no longer file a separate return. 
D) is considered to be a continuation of the old target corporation for purposes of the tax attribute carryover rules.

Identify which of the following statements is true.

Which one of the following is not a corporate reorganization as defined in the Internal Revenue Code?

Identify which of the following statements is true.

Identify which of the following statements is false.

Identify which of the following statements is false.

Identify which of the following statements is true.

In a nontaxable reorganization, the holding period for the stock received by the target shareholders includes the holding period of the stock surrendered.

Identify which of the following statements is true.

The Supreme Court has held that literal compliance with the statutory requirements for a reorganization transaction is not enough for a transaction to receive tax-free treatment. The courts have placed four primary restrictions on reorganization transactions. What are they?

Identify which of the following statements is true.

Advance rulings are required for all reorganizations.

A stock acquisition that is not treated as a purchase for purposes of meeting the Sec. 338 rules is

Johnson Co. transferred part of its assets to Alive Corporation in exchange for all of Alive's stock. The Alive stock received for the assets was distributed to the Johnson shareholders. What tax issues should the parties to the divisive reorganization consider?

An acquiring corporation must use the acquisition method for financial statement purposes whether the business combination is a taxable purchase or a nontaxable reorganization.

In a Sec. 338 election, the target corporation

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Exam 7: Corporate Acquisitions and Reorganizations

Identify which of the following statements is true.

Which one of the following is not a corporate reorganization as defined in the Internal Revenue Code?

Identify which of the following statements is true.

Identify which of the following statements is false.

Identify which of the following statements is false.

Identify which of the following statements is true.

In a nontaxable reorganization, the holding period for the stock received by the target shareholders includes the holding period of the stock surrendered.

Identify which of the following statements is true.

The Supreme Court has held that literal compliance with the statutory requirements for a reorganization transaction is not enough for a transaction to receive tax-free treatment. The courts have placed four primary restrictions on reorganization transactions. What are they?

Identify which of the following statements is true.

Advance rulings are required for all reorganizations.

A stock acquisition that is not treated as a purchase for purposes of meeting the Sec. 338 rules is

Johnson Co. transferred part of its assets to Alive Corporation in exchange for all of Alive's stock. The Alive stock received for the assets was distributed to the Johnson shareholders. What tax issues should the parties to the divisive reorganization consider?

An acquiring corporation must use the acquisition method for financial statement purposes whether the business combination is a taxable purchase or a nontaxable reorganization.

In a Sec. 338 election, the target corporation

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Us Taxation of Foreign-Related Transactions

Filters