Exam 7: Corporate Acquisitions and Reorganizations

Acquiring Corporation acquires at the close of business on June 30 (of a nonleap year)all of the stock of Target Corporation as part of a merger transaction.Target Corporation is liquidated into Acquiring Corporation on the same day as part of the merger.Acquiring obtains assets having a $600,000 FMV and a $275,000 adjusted basis,along with a $100,000 net operating loss.Acquiring Corporation reports taxable income of $146,000 for the year.What amount of Target Corporation's NOL can be used to offset Acquiring Corporation's taxable income? (Assume all months have 30 days and ignore the Sec.382 limitation rules. )

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Question 1

Correct Answer:

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The lesser of Target's NOL carryover ($100,000)or Acquiring's taxable income for the postmerger portion of the tax year ($73,000 = $146,000 × 6/12)can be offset by Target's NOL carryover.Therefore,the answer is $73,000.

Acquiring Corporation acquires all of the assets of Target Corporation in exchange for $3,000,000 of Acquiring common stock and the assumption of $2,000,000 of Target's liabilities.The assets had a $2,300,000 adjusted basis to Target.Target's sole shareholder,Paula,had a $1,000,000 adjusted basis for her stock.Target Corporation had $600,000 of E&P on the acquisition date.Paula receives all of the Acquiring common stock in the liquidation of Target.What are the tax consequences of the acquisition to: Acquiring,Target,and Paula?

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Question 2

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Acquiring: Acquiring Corporation does not recognize any gain when it issues its common stock in exchange for Target's assets (Sec.1032).The assets take a $2,300,000 adjusted basis on Acquiring's books (Sec.362).Acquiring assumes Target's $600,000 E&P balance (Sec.381).
Target: Target realizes a $2,700,000 [($3,000,000 + $2,000,000)- $2,300,000 adjusted basis] gain on the transfer of its assets.No boot is received and retained,so no gain is recognized (Sec.361(a)).No gain is recognized on the distribution of the Acquiring Corporation stock to Target's sole shareholder (Sec.361(c)).
Paula: Paula realizes a $2,000,000 ($3,000,000 - $1,000,000)gain on the exchange of her Target stock for the Acquiring stock.None of the gain is recognized (Sec.354).Her basis for the Acquiring stock is $1,000,000 (Sec.358).Her holding period for the Acquiring stock includes her holding period for the Target stock (Sec.1223).

Roby Corporation,a Tennessee corporation,decides to change its state of incorporation to Delaware to take advantage of its more favorable state corporation laws.Roby Corporation can take advantage of the Type F reorganization rules by

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Question 3

Correct Answer:

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Identify which of the following statements is true.

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Question 4

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

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Question 5

Axle Corporation acquires 100% of Drexel Corporation's stock from Drexel's shareholders for $500,000 cash.Drexel Corporation has assets with a $600,000 adjusted basis and an $800,000 FMV.The assets are subject to $200,000 in liabilities.Drexel Corporation shareholders purchased their stock eight years ago for $300,000.Axle Corporation's basis in the Drexel Corporation stock is

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Question 6

Discuss the advantages and disadvantages of a tax-free reorganization as compared with a taxable transaction.

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Question 7

Define the seven classes of assets used in allocating basis when using the residual method.

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Question 8

Identify which of the following statements is false.

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Question 9

Identify which of the following statements is true.

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Question 10

Identify which of the following statements is true.

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Question 11

The Sec.338 deemed sale rules require that 70% of the target corporation's stock be owned.

(True/False)

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Question 12

In a Sec.338 election,the target corporation

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Question 13

The acquiring corporation does not recognize gain or loss in a reorganization where it receives boot.

(True/False)

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Question 14

Melon Corporation makes its first purchase of 30% of Hill Corporation stock on July 31 of this year.Melon Corporation uses a calendar tax year.To use the Sec.338 election,Melon Corporation must purchase

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Question 15

Grant Corporation transfers highly appreciated stock to Subsidiary Corporation in exchange for all of its stock.The Subsidiary Corporation stock is distributed to its sole shareholder,Peter.Three weeks after the distribution of the Subsidiary stock,Subsidiary Corporation liquidates.Peter then sells the appreciated stock that he received in the liquidation.This series of transactions

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Question 16

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?

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Question 17

Identify which of the following statements is true.

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Question 18

Acquiring Corporation acquires all of the stock of Target Corporation in a Type B (stock-for-stock)reorganization.Both corporations have always filed separate tax returns.Which one of the following statements regarding the acquisition is correct?

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Question 19

Identify which of the following statements is true.

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Question 20

Showing 1 - 20 of 100

Roby Corporation,a Tennessee corporation,decides to change its state of incorporation to Delaware to take advantage of its more favorable state corporation laws.Roby Corporation can take advantage of the Type F reorganization rules by

Identify which of the following statements is true.

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

Discuss the advantages and disadvantages of a tax-free reorganization as compared with a taxable transaction.

Define the seven classes of assets used in allocating basis when using the residual method.

Identify which of the following statements is false.

Identify which of the following statements is true.

Identify which of the following statements is true.

The Sec.338 deemed sale rules require that 70% of the target corporation's stock be owned.

In a Sec.338 election,the target corporation

The acquiring corporation does not recognize gain or loss in a reorganization where it receives boot.

Melon Corporation makes its first purchase of 30% of Hill Corporation stock on July 31 of this year.Melon Corporation uses a calendar tax year.To use the Sec.338 election,Melon Corporation must purchase

Identify which of the following statements is true.

Acquiring Corporation acquires all of the stock of Target Corporation in a Type B (stock-for-stock)reorganization.Both corporations have always filed separate tax returns.Which one of the following statements regarding the acquisition is correct?

Identify which of the following statements is true.

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