Exam 7: Corporations: Reorganizations

Tuna Corporation is very interested in acquiring Barracuda Corporation.Tuna processes and packages seafood items.Barracuda supplies Tuna with the seafood.Tuna has been trying to negotiate a merger with Barracuda's management but has been unsuccessful.Barracuda's executives,who own 15% of the outstanding common stock,are concerned about losing their jobs after the merger.However,it appears that the majority of Barracuda common shareholders feel this merger would increase the value of both firms.Tuna currently owns 25% of Barracuda that it acquired 10 years ago for cash.Tuna has asked for your advice as to how to proceed.Suggest an effective method for Tuna to acquire Barracuda with the least tax cost.

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 -Feather currently has four divisions that have been in existence for 15 years.Feather creates three new corporations and transfers one division to each newly formed corporations in exchange for all of the stock of these new corporations.Feather retains one division.Feather then distributes the stock in the three new corporations to its shareholders in exchange for 75% of their stock in Feather.

Which of the following is not a reorganization designated under § 368(a)(1)?

Western Corporation is two years old.In June of the current year,Western makes an S election effective for the current year and becomes Western S Corporation.Western's sole shareholder,Wayne,exchanges all of his Western stock for all the stock of Western S Corporation plus $50,000 cash.

Bark Corporation merged into Dog Corporation two years ago.At the time of the merger,Bark had an earnings and profits (E & P)deficit of $250,000 and Dog had a positive E & P of $200,000.The prior two years have resulted in a positive E & P of $100,000.Despite having a negative E & P of $30,000 for the year,Dog makes a distribution to its shareholders of $270,000.How is the distribution taxed to the shareholders?

Tiger Corporation is interested in acquiring most of Buffalo Corporation's assets.Buffalo's assets are currently valued at $700,000.However,there is one division of Buffalo in which Tiger is not interested.Since Buffalo wants the Tiger takeover to occur,it sells the line for its net fair market value of $250,000 ($350,000 assets less $100,000 in liabilities).Buffalo then transfers its remaining assets to Tiger for $450,000 in common voting stock.

Alister Corporation would like to enter into a reorganization transaction with Tiber Corporation.Alister will exchange $300,000 of common stock,$80,000 of preferred stock,and $20,000 cash for most of Tiber's assets (worth $450,000)and long-term liabilities ($50,000).Tiber distributes the stock,cash,unwanted assets (worth $100,000),and short-term liabilities (valued at $30,000)to its shareholders.Which of the following statements is true?

Mergers and acquisitions (M & A)are popular methods of increasing the economic vitality of businesses.Which of the following statements is true regarding the current trends in M & A?

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 -Loser Corporation is considering filing bankruptcy under Chapter 11.Loser transfers all of its assets to NewStart Corporation in exchange for NewStart's stock and $400,000 in cash.Loser uses the cash to pay off most of its liabilities and then distributes the balance to NewStart stock shareholders and any remaining debtors.After the transaction,Loser liquidates.

Cat Corporation is acquiring Bird Corporation by exchanging 100,000 shares of Cat stock and $80,000 cash for all of Bird's assets (valued at $500,000),liabilities ($200,000),and accumulated earnings and profits ($120,000).Betty purchased 40% of Bird five years ago for $60,000 and Keith purchased the remaining 60% for $90,000.What is the amount and character of the gain or loss Betty and Keith recognize,assuming that the reorganization qualifies as a "Type A" reorganization? What is the basis in their new Cat Corporation stock?

After a tax-free reorganization,the remaining corporation may not combine the earnings and profits (E & P)of the acquiring and target corporations.The E & P of the acquiring corporation may be used for dividend payments only after the target corporation's E & P are fully utilized.

Burnbay Corporation wants Current Corporation to become a 100% owned subsidiary.Burnbay acquires 90% of Current's stock (worth $300,000)by exchanging its common voting stock with the shareholders of Current.Since 10% of the Current shareholders are not interested in being common shareholders of Burnbay,they retain their shares.This transaction qualifies as what type of reorganization?

To expedite requests for letter rulings on corporate reorganizations,the entities involved should apply for the letter ruling within 10 weeks of completing the transaction.

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 -Bark and Wood Corporations are created by Tree Corporation.Tree transfers its calculator business to Bark in exchange for all of Bark's stock.Tree distributes the Bark stock to its shareholders in exchange for 60% of their Tree stock.Next,Tree transfers its slide ruler division to Wood for all of its stock.Tree distributes the Wood stock to its shareholders in exchange for their remaining Tree stock.Tree then liquidates.Tree had operated both lines of business for 35 years.

The continuity of interest and the continuity of business requirements prevent transactions that appear to be a sale from qualifying for tax-free treatment of a reorganization.

The step transaction doctrine is helpful in reorganizations such as a "Type C" and acquisitive "Type D" where all the assets are not desired.

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 -Apple Corporation transfers voting stock to Banana Corporation in exchange for substantially all of its assets (value $600,000),$15,000 cash,and assumes $100,000 of Banana's liabilities.Banana distributes the Apple stock and cash to its shareholders in exchange for their Banana stock.Banana then liquidates.

United States tax policy tries to encourage business development.

A taxable gain due to a corporate reorganization can be taxed as a ____________________ or ____________________ for a shareholder.

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 gain when exchanging target preferred stock for acquiring voting stock.