Exam 7: Corporations: Reorganizations

A corporate reorganization in the form of an exchange of stock does not qualify as a like-kind exchange.

Which reorganization is most likely to run afoul of the continuity of interest test?

The assumption of the target's liabilities by the acquiring corporation generally is only problematic in a ____________________ reorganization.

Silver Corporation redeems all of Alluvia's 3,000 shares and distributes to her 1,000 shares of Gold Corporation stock plus $20,000 cash.Alluvia's basis in her 30% interest in Silver is $80,000 and the stock's market value is $120,000.At the time Silver is acquired by Gold,the accumulated earnings and profits of Silver are $100,000 and Gold's are $50,000.How does Alluvia treat this transaction for tax purposes?

Match the following items with the statements below. Terms may be used more than once. a.Capital gain b.Continuity of business enterprise c.Continuity of interest d.Dividend e.Equity change f.Liability assumption g.Ordinary gain h.Ownership change i.Not recognized j.Sound business purpose k.Step transaction -Requirement can be met if the acquiring corporation uses a significant portion of the target corporation's assets.

Opal exchanges her 1,000 shares of voting stock with a value of $100,000 for 100 bonds each with a face value of $1,000.This qualifies as a tax-free "Type E" reorganization.

Winner Corporation is acquiring the bankrupt Loser Corporation in a "Type G" reorganization.Loser's liabilities are $600,000 and the fair market value of its assets is $200,000 with a basis of $300,000.It has a capital loss of $50,000 and an NOL of $200,000 that will be carried over to Winner.Compute Winner's basis in Loser's assets assuming no special elections are made and Loser's relief from cancellation of debt income is for the total amount possible.

Noncorporate shareholders would prefer to have a gain on a corporate reorganization treated as a capital gain rather than as a dividend,because of the lower tax rates applied to capital gains.

Since a "Type F" reorganization causes only ____________________changes in a single corporation,the tax characteristics of the predecessor ____________________ to the successor.

In a "Type B" reorganization,shareholders generally only receive ___________________ stock.However,they may receive cash for ___________________.

Gravy Corporation and Dirt Corporation enter into merger negotiations.Gravy is very interested in a merger with Dirt because it has a large NOL that Gravy could use to offset its income from manufacturing processed food.Dirt has been sustaining losses in its contaminated dirt removal business.Gravy acquires all of Dirt's assets and liabilities in exchange for 20% of Gravy's stock.Dirt immediately liquidates by transferring Gravy stock to its shareholders in exchange for all of their Dirt stock.How will this transaction be treated for tax purposes?

Debt security holders receive similar treatment to shareholders in a corporate reorganization,as long as the face value of the debt relinquished is equal to the debt received.

The highest adjusted Federal long-term interest rate for the prior three-month period,known as the ____________________,is multiplied by the value of loss corporation's stock to determine the ____________________.

Present value tables needed for this question. Hard Corporation has net assets valued at $900,000 and an NOL of $450,000.On January 3 of the current year,Hard is acquired by Soft Corporation in a restructuring qualifying as a tax-free reorganization that causes an ownership shift of 80 percentage points for the Hard shareholders.Soft uses a calendar year for tax purposes.Assuming that the long-term tax-exempt rate is 5%,what is the maximum amount Soft should be willing to pay Hard for its NOL,if Soft uses a 10% discount factor for this decision?

Match the following items with the statements below. Terms may be used more than once. a.Capital gain b.Continuity of business enterprise c.Continuity of interest d.Dividend e.Equity change f.Liability assumption g.Ordinary gain h.Ownership change i.Not recognized j.Sound business purpose k.Step transaction -Limits nonrecognition treatment to reorganizations that are motivated by valid corporate needs.

Match the following items with the statements below. Terms may be used more than once. a.Capital gain b.Continuity of business enterprise c.Continuity of interest d.Dividend e.Equity change f.Liability assumption g.Ordinary gain h.Ownership change i.Not recognized j.Sound business purpose k.Step transaction -Shareholder's loss to the extent of boot received in a qualified reorganization.

Discuss the judicial doctrines of sound business purpose,continuity of interest,and the step transaction as they relate to tax-free corporate reorganizations.

The _________________________ ____________________ ____________________ ____________________ doctrine provides that if a shareholder has substantially the same investment after the restructuring as before,the transaction is not a taxable event.

Determining whether a shareholder's gain on a corporate reorganization can qualify for stock redemption treatment is based on the reduction in the percentage of the stock held in the target corporation when compared to the percentage held in the acquiring corporation.

Which of the following statements regarding ownership changes and the § 382 limitations is true?