Exam 7: Corporations: Reorganizations

In the "Type A" merger, the acquiring corporation must assume all of the liabilities (known and contingent) of the target, but in the "Type A" consolidation only those liabilities selected by the new corporation need be transferred.

Western, Inc. is a corporation located in California. In June of the current year, Western moves to Georgia and changes its name to Southern Corporation. Its sole shareholder, Dharma, exchanges all of her stock in Western and receives all of the stock in Southern.

Which of the following statements is true regarding a "Type A" reorganization?

Which of the following statements is true concerning all types of tax-free corporate reorganizations?

In which type of reorganization could bonds and other liabilities be exchanged for stock and not be treated as boot?

Ocelot Corporation is merging into Tiger Corporation under state law requirements. Ocelot transfers $300,000 of assets to Tiger in exchange for 30,000 shares and $200,000 in cash. Ocelot transfers the Tiger stock, $200,000 cash, and all of its liabilities ($50,000) to its shareholder, Van, in exchange for all of his Ocelot stock (basis $100,000). Ocelot then liquidates. How will this transaction be treated for tax purposes?

The acquisitive "Type D" reorganization differs from other restructurings in that the entity that transfers its assets is the ____________________ corporation rather than the ____________________ corporation.

Heart Corporation has net assets valued at $1 million and an NOL of $250,000. On December 31 of last year, Heart is acquired by Brain Corporation, a calendar year taxpayer, in a restructuring qualifying as a tax-free reorganization. Heart shareholders receive 45% of Brain's shares in exchange for all of the Heart stock. Assuming that the Federal long-term tax-exempt rate is 5% and Brain's discount factor is 10%, what is the maximum amount that Brain can use of Heart's NOL this year?

Loser Corporation has outstanding bonds of $800,000 and assets valued at $600,000. It also has a $200,000 NOL and capital loss carryovers of $160,000. Loser is solely owed by Dai Won. Loser is restructured and the successor company is LouderCo. Which of the following statements is false?

Which of the following statements regarding "Type B" reorganizations is true?

The acquiring corporation in a "Type G" reorganization must reduce the tax attributes carried over to it to the extent of the ____________________ relief.

Dirty Corporation has owned two chemical manufacturing facilities for the last 20 years. One facility is located in Oklahoma while the other is in Oregon. There have been some environmental investigations at the Oregon facility. Therefore, Dirty creates a new corporation, called Clean, and places the assets of the Oregon plant into Clean in exchange for all of Clean's stock. Dirty distributes this stock proportionately to its shareholders in exchange for 40% of their Dirty stock. How will this transaction be treated for tax purposes?

One advantage of acquiring a corporation with losses is that after a tax-free reorganization, the remaining corporation may combine the negative earnings and profits (E & P) of the target corporation with positive E & P of the acquiring corporation.

NewCo received all of DebtCo's assets (value $600,000, basis $150,000) through a Federal court proceeding. The creditors of DebtCo received NewCo voting stock in exchange for their debt, representing 100% of the total liabilities ($500,000). Also transferred to NewCo are DebtCo's tax attributes, including the following carryovers: capital losses $70,000, NOL $300,000, and general business credits $80,000.

When tax attributes are carried over from a loss target corporation to the acquiring corporation, the NOLs are utilized ____________________ (before/after) capital losses.

Sweet Corporation is in the candy business and sells most of its products in Europe. Lucky Corporation manufactures horse shoes for domestic consumption. Lucky would like to acquire Sweet Corporation because Sweet has large built-in losses in its business assets and foreign tax credit carryovers. To benefit from the built-in ordinary losses, Lucky will sell most of Sweet's business assets upon completion of the reorganization. Those assets with built-in gains will be distributed proportionately before the reorganization to Sweet's shareholders in exchange for 60% of their stock. All of the Sweet shareholders will receive Lucky stock for their remaining shares in Sweet. Which of the following statements is false?

Present Value Tables needed for this question. Hair Corporation would like to acquire Scalp Corporation on August 31 because Scalp has an $8,000 capital loss carryover and $32,200 of general business credits that Hair could readily use. At this time, Scalp has assets valued at $1 million (basis of $1.1 million). While Hair is not interested in having Scalp's shareholders become its shareholders, it is interested in expanding into Scalp's business line. Hair thinks it could turn Scalp around with up-to-date equipment. Thus, Hair would like to sell Scalp's assets immediately, recognize the loss to offset its expected gains, and then use the proceeds to purchase new equipment. Hair is a very profitable corporation and is also expecting to have at least $50,000 of capital gains and $3 million in other income for the current year. Hair is proposing paying cash for all of Scalp's assets and liabilities. The Federal long-term tax-exempt rate is currently 3%, and Hair's discount factor for making investment decisions is 15%.

Which of the following statements is false?

To ensure the desired tax treatment, parties contemplating a corporate reorganization should apply for a Regulation from the Treasury.

Korat Corporation and Snow Corporation enter into an acquisitive "Type D" reorganization. Xin currently holds a 20-year, $10,000 Snow bond paying 4% interest. There are 8 years until the bond matures. In exchange for his Snow bond, Xin receives an 8 year $16,000 Korat bond paying 2.5% interest. Xin thinks this is fair because he will still receive $400 of interest each year and both bonds mature on the same date. How does Xin treat this transaction on his tax return?