Exam 7: Corporations: Reorganizations

The so-called "anti-stuffing" rules are designed to thwart shareholders from contributing assets to a loss corporation,chiefly to increase its value for the computation of the § 382 limitation.

Rosa Corporation transfers $1 million of its voting stock and $200,000 cash to Clara Corporation in exchange for 90% of its assets.Clara uses all of its remaining assets and the cash received from Rosa to pay its liabilities.Clara then distributes the Rosa stock to its shareholders in exchange for all of their shares of Clara.Lastly,Clara terminates.This restructuring qualifies as a:

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 -Prevents transactions that appear to be a sale from qualifying as nontaxable reorganizations.

Target Corporation is merging into Acquiring Corporation under state law requirements.Target has 3,000 shares outstanding,with a value of $100 per share.Joey,one of Target's shareholders,exchanges his 500 Target shares,for which he paid $80 per share,for 1,000 shares of Crow stock,valued at $30 per share,and $5,000 cash.Acquiring owns 40% of Crow stock.How does Joey treat this transaction for tax purposes?

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 -Snow Corporation desires to change to an S Corporation.On March 1 of the current year,it files all necessary forms with the IRS.The change becomes retroactive to January 1 of the current year.

Brighton Corporation requires all of its shareholders to relinquish a proportionate number of their common shares,and in return they receive preferred stock.For each 10 shares of common stock,the shareholders receive 1 share of preferred.After the transaction is complete,60% of the shareholders sell their preferred stock to the remaining 40% preferred owners.Which of the following statements is correct?

A 50 percentage point ownership shift evoking the § 382 limitations can occur with a "Type E" reorganization when the shareholders exchange their shares for bonds.

Present Value Tables needed for this question.Coffee Corporation would like to acquire Cream Corporation on January 3rd of the current year in a tax-free reorganization.Cream is particularly appealing to Coffee because Cream has a $900,000 NOL.Coffee is a very profitable corporation and would be able to use this NOL.At the time of the restructuring,Cream has assets valued at $3 million (basis of $2.8 million).Coffee is proposing exchanging 25% of its stock for all of Cream's assets.The long-term tax-exempt rate and Coffee's discount rate for investment decisions both currently are 6%.What is the maximum present value of the NOL to Coffee?

The objective of the § 382 limitation is to restrict the use of tax carryover benefits to a hypothetical future income stream from the former loss corporation's assets,based on its stock value at the time of the reorganization.

Mortisha exchanges her $300,000 in preferred stock and a $100,000 bond for 40% of the common stock (worth $400,000)in Adams Corporation.The bond paid 6% annual interest and the preferred stock had been paying a 5% dividend which was cumulative.The common stock is not likely to pay dividends in the next three years because Adams is having some financial difficulties.

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 recognized gain to the extent of proportionate share of corporate earnings and profits in a qualified reorganization.

Explain when the IRS would use § 269 to disallow the carryover of tax benefits from a target to an acquiring corporation.

Shareholders recognize gains and losses if they receive assets other than stock (boot).

North Corporation acquires 90% of South's assets by exchanging $600,000 of its voting stock and assuming $300,000 of South's liabilities.South uses part of its remaining $100,000 in cash to satisfy its $40,000 in liabilities not assumed by North.South then liquidates by transferring the North stock and the $60,000 cash to its shareholders in exchange for their South stock.

Deer Corporation was acquired last year by Lobo Corporation in a transaction causing an ownership change.At the time of the acquisition,the fair market value of Deer was $1.5 million and the Federal long-term tax-exempt rate was 5%.In the current year,Lobo has $600,000 of taxable income and excess credits carryovers from Deer amounting to $40,000.What is Lobo's Federal income tax for the year if Lobo is in the 34% tax bracket?

Since the § 382 limitation purpose is to limit losses available to a corporation acquiring a loss corporation,the limitation applies only to NOLs,built-in losses on transferred assets,and capital losses.

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 -Purple Corporation wants to combine with Pink Corporation.Purple transfers substantially all of its assets to Pink for 82% of Pink's voting shares.Purple distributes the Pink stock and its remaining assets to its shareholders in exchange for their Purple stock.Purple then liquidates.Purple's shareholders are in control of Pink Corporation.

Section 368(a)(1)allows for seven types of reorganizations,each designated by a letter.A "Type A" is a ____________________ or ____________________.A "Type B" is a ____________________ stock for ____________________ exchange.A "Type C" is a stock for ____________________ exchange.A "Type D" can be either ____________________ or ____________________.A "Type E" is a ____________________.A "Type F" is a mere change in the ____________________,_____________________,or ____________________ of organization.Lastly,a "Type G" is a _____________________.