Exam 7: Corporations: Reorganizations

Corporations may engage in a variety of ____________________,____________________,____________________,tax-free,as long as the reorganizations meet the requirements of the Code.

Hydrogen Corporation has assets valued at $500,000 (adjusted basis of $100,000),liabilities of $200,000,and accumulated earnings and profits of $50,000.Oxygen Corporation has entered into negotiations with Hydrogen to acquire it in a corporate reorganization transaction.Which of the following statements is true with regard to the proposed reorganization?

Corporate reorganizations must have economic consequences that are germane to the businesses that go beyond mere ____________________ ____________________.This judicial doctrine is called the _____________________ ____________________ ____________________ test.

Max is the sole shareholder of Smart Corporation.He started the internet company five years ago and has been working hard to turn a profit.Predicting that Smart will to be very profitable next year,Max had Smart borrow $250,000 to pay him the salary he rightly deserves.At the end of the current year,Smart has total assets of $400,000 and liabilities of $350,000.Max's basis in his stock is $200,000.Next year,Smart does become profitable and Max is approached by Buyall Corporation,a competitor,to sell Smart.Rather than a sale,Max suggests a merger in which he receives stock in Buyall in the amount of $700,000 plus $50,000 cash for all the assets and liabilities associated with the assets ($150,000).Buyall counters with an offer of $650,000 in Buyall stock for all of the assets and the $250,000 salary liability.Should Max take Buyall's offer or insist on what he wants?

Crater Corporation is owned 70% by Lin Yuan and 30% by Yu Chi.Due to news articles damaging Crater's reputation,Lin and Yu decide to liquidate Crater,which has been in existence for eight years.They create Lunar and Solar corporations to receive all of the manufacturing assets of Crater.Lunar receives the night light manufacturing assets and Solar receives the heat lamp business.All of the Lunar stock and 40% of the Solar stock is given to Lin in exchange for her Crater stock.Yu receives the remaining 60% of Solar in exchange for his Crater stock.Crater then liquidates.Assuming all other requirements are met,these transactions qualify as:

What type of reorganization is affected in each of the following independent transactions? a. "A" reorganization, merger b. "A" reorganization, consolidation c. "B" reorganization d. "C" reorganization e. Acquisitive "D" reorganization f. "D" reorganization, spin-off g. "D" reorganization, split-off h. "D" reorganization, split-up i. "E" reorganization j. "F" reorganization k. "G" reorganization l. Taxable transaction -Black Corporation has been engaged in manufacturing toys for 8 years and tools for 3 years.Black creates Brown Corporation and transfers the toy division to it in exchange for all of Brown's common voting stock.Black then distributes the Brown stock to its shareholders.

Besides the statutory requirements,reorganizations must meet several judicially created doctrines.

The home mortgage industry has been particularly active in consolidation reorganizations in recent years.

The general rule for corporate reorganizations is that the corporations involved in a restructuring and their shareholders do not recognize gain or loss on the restructuring.However,there are situations when the corporations or shareholders may recognize gains.Explain when gain recognition can occur.

Perry owns 80% of Weed Corporation and Aimee owns the other 20%.In exchange for all of the Weed stock,Perry receives 3,400 shares of Grass Corporation common stock (value $70,000),and Aimee receives 50 shares of Grass preferred (value $20,000).Perry also receives $10,000 in bonds.The exchange qualifies as what type of transaction?

Cardinal Corporation redeems all of its voting common stock.Cardinal then exchanges this redeemed stock with Wren corporation for 40% of Wren's voting common and nonvoting preferred stock.The Wren stock was distributed to the Cardinal shareholders.After the transaction,both Cardinal and Wren corporations still exist.The former Cardinal shareholders are now shareholders of Wren.This transaction qualifies as a(n):

Target liabilities assumed by the acquiring corporation in a "Type C" reorganization are considered boot when cash or other property is exchanged by the acquiring corporation. This is likely to destroy the tax-free treatment.

The acquiring corporation in a "Type G" reorganization reduces the tax attributes carried over from the bankrupt corporation by the percentage in change in ownership.

Yellow Corporation and Green Corporation enter into a "Type A" reorganization.Raul currently holds a 15-year $100,000 Green bond paying 6% interest.In exchange for his Green bond,Raul receives a 5-year $125,000 Yellow bond paying 5% interest.Raul is happy with the Yellow bond because,even though it pays a lower interest rate,the yield provides slightly more interest than the Green bond,and both bonds mature on the same date.How does Raul treat this transaction on his tax return?

Avocado Corporation and Tomato Corporation want to join forces as one corporation because their businesses are complimentary.They would like the resulting corporation to have a new name because both of them have been involved in high profile lawsuits due to environmental issues.Avocado is a manufacturer with a basis in its assets of $2 million (value of $2.9 million)and liabilities of $500,000.Tomato is a distributor of a variety of products including those of Avocado's.Its basis in its assets is $1.2 million (value of $2 million)and has liabilities of $400,000.Given these facts,what type of reorganization would you suggest for Avocado and Tomato?

In a ___________________ reorganization,assets of the acquiring corporation are transferred to the target.The acquiring must acquire at least ___________________ percent of the target's stock.

If the tax implications and dollar amounts involved in a reorganization are significant,the participating corporations should apply for a ____________________ ____________________ from the IRS.

How does the acquiring corporation in a "Type G" reorganization treat the bankrupt corporation's cancellation of debt?

Define the different divisive "Type D" reorganizations.

Losses carried over from the target corporation to the acquiring corporation may be limited under Code sections ____________________ and ____________________.