Question 1

Without evidence to the contrary, the IRS views transactions occurring within one year of a reorganization as part of the restructuring.

Accepted Answer

A) True 
 B)False

Question 2

Discuss the role of letter rulings in corporate reorganizations.

Accepted Answer

When feasible, the parties in a corporat

Question 3

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, spin­off
g. "D" reorganization, split­off
h. "D" reorganization, split­up
i. "E" reorganization
j. "F" reorganization
k. "G" reorganization
l. Taxable transaction
-Black Corporation has been engaged in manufacturing toys and investing in high technology corporate stock for eight years. Black creates Blue and White Corporations. It transfers the toy division to Blue and the investments to White, in exchange for all of each corporation's common voting stock. The stock of Blue and White is distributed to Black shareholders in return for all of their Black stock. Black then liquidates.

Accepted Answer

The answer of What type of reorganization is affected in...

Question 4

Obtaining a positive letter ruling from the IRS can ensure the desired tax treatment for parties contemplating a corporate reorganization.

Accepted Answer

A) True 
 B)False

Question 5

Since the "Type B" reorganization precludes the use of , gain or loss is not recognized. In this type of reorganization, a relationship between the acquiring and target corporations is created.

Accepted Answer

boot, pare

Question 6

Asity Corporation is interested in acquiring the majority of Pitta Corporation's assets. Pitta's assets are currently valued at $950,000, and its liabilities are $250,000. However, there is one operating division of Pitta in which Asity is not interested. Since Pitta desires to be taken over by Asity, Pitta first sells the unwanted division for its net fair market value of $250,000 ($350,000 FMV assets - $100,000 liabilities). Pitta then transfers its remaining assets and liabilities to Asity for $450,000 in common voting stock. Which of the following statements is correct with regards to the proposed restructuring?

Accepted Answer

A)  Continuity of interest does not exist for the Pitta shareholders. 
B)  The continuity of business enterprise test is failed. 
C)  There is no sound business purpose for this restructuring. 
D)  The step transaction can be applied to this transaction. 
E)  All of the above statements are true. 
A)  Continuity of interest does not exist for the Pitta shareholders. 
B)  The continuity of business enterprise test is failed. 
C)  There is no sound business purpose for this restructuring. 
D)  The step transaction can be applied to this transaction. 
E)  All of the above statements are true.

Question 7

When a corporation has cancellation­of­debt relief in a "Type G" reorganization, the corporation reduces its benefits in tax items such as earnings and profits.

Accepted Answer

A) True 
 B)False

Question 8

Grebe Corporation is a car dealership that has been in existence for 10 years. It has also been in the car leasing business for 6 years. Both businesses produce substantial amounts of cash, and Grebe has been investing this cash in mutual funds for the past 10 years. Grebe is interested in separating its businesses. It will create (a) new corporation(s) to receive assets in exchange for stock. Which of the following is correct regarding this transaction?

Accepted Answer

A)  Grebe must distribute at least 80% of the new corporation(s) stock to its shareholders in exchange for a proportionate amount of Grebe's stock. If the shareholders do not exchange stock, the transaction receives dividend treatment. 
B)  Grebe may create up to 3 new corporations because it has 3 lines of business. If 3 new corporations are created, Grebe ceases to exist because it will have no assets. 
C)  The new corporations created will carry over no tax attributes or earnings and profits from Grebe. 
D)  Using a split­off "Type D" reorganization, Grebe can transfer the car leasing business to the new corporation and exchange the new corporation stock for some of the Grebe stock held by its shareholders. 
E)  All of the above statements are correct. 
A)  Grebe must distribute at least 80% of the new corporation(s) stock to its shareholders in exchange for a proportionate amount of Grebe's stock. If the shareholders do not exchange stock, the transaction receives dividend treatment. 
B)  Grebe may create up to 3 new corporations because it has 3 lines of business. If 3 new corporations are created, Grebe ceases to exist because it will have no assets. 
C)  The new corporations created will carry over no tax attributes or earnings and profits from Grebe. 
D)  Using a split­off "Type D" reorganization, Grebe can transfer the car leasing business to the new corporation and exchange the new corporation stock for some of the Grebe stock held by its shareholders. 
E)  All of the above statements are correct.

Question 9

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

Accepted Answer

A)  Since a parent-subsidiary relationship is created, the tax attribute carryover limitations are problematic. 
B)  The acquisition of liabilities can cause problems when the liabilities of the target are greater than 20% of the total consideration and the acquiring owned target stock prior to the "Type B" reorganization. 
C)  The acquisition of common and preferred target stock by the acquiring can be directly from the shareholders or from the target corporation. 
D)  The acquiring corporation must distribute the target stock it obtains to its shareholders. The acquiring shareholders do not always have to turn in acquiring stock in exchange for the target stock. 
E)  All of the above statements are true. 
A)  Since a parent-subsidiary relationship is created, the tax attribute carryover limitations are problematic. 
B)  The acquisition of liabilities can cause problems when the liabilities of the target are greater than 20% of the total consideration and the acquiring owned target stock prior to the "Type B" reorganization. 
C)  The acquisition of common and preferred target stock by the acquiring can be directly from the shareholders or from the target corporation. 
D)  The acquiring corporation must distribute the target stock it obtains to its shareholders. The acquiring shareholders do not always have to turn in acquiring stock in exchange for the target stock. 
E)  All of the above statements are true.

Question 10

Bobcat Corporation redeems all of Zed's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash. Zed's basis in his 20% interest in Bobcat is $100,000 and the stock's value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $200,000 and of Van are $75,000. How does Zed treat this transaction for tax purposes?

Accepted Answer

A)  No gain is recognized by Zed in this reorganization. 
B)  Zed reports a $50,000 recognized dividend. 
C)  Zed reports a $50,000 recognized capital gain. 
D)  Zed reports a $40,000 recognized dividend and a $10,000 capital gain. 
E)  Not enough information is available to determine proper treatment. 
A)  No gain is recognized by Zed in this reorganization. 
B)  Zed reports a $50,000 recognized dividend. 
C)  Zed reports a $50,000 recognized capital gain. 
D)  Zed reports a $40,000 recognized dividend and a $10,000 capital gain. 
E)  Not enough information is available to determine proper treatment.

Question 11

Yoko purchased 10% of Toyger Corporation's stock six years ago for $70,000. In a transaction qualifying as a "Type C" reorganization, Yoko received $50,000 cash and 8% of Angora Corporation's stock (valued at $100,000) in exchange for her Toyger stock. Prior to the reorganization, Toyger had $200,000 accumulated earnings and profits and Angora had $300,000. How does Yoko treat the exchange for tax purposes?

Accepted Answer

A)  As a recognized $50,000 long-term capital gain. 
B)  As a $50,000 dividend. 
C)  As a $20,000 dividend and a $30,000 capital gain. 
D)  As a $30,000 dividend and a $20,000 capital gain. 
E)  None of the above. 
A)  As a recognized $50,000 long-term capital gain. 
B)  As a $50,000 dividend. 
C)  As a $20,000 dividend and a $30,000 capital gain. 
D)  As a $30,000 dividend and a $20,000 capital gain. 
E)  None of the above.

Question 12

An exchange of common stock for preferred stock or bonds for preferred stock can qualify as a "Type E" reorganization.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  At least 80% of the acquiring corporation's consideration must be voting stock but the other 20% can be cash or preferred stock. 
B)  The target shareholders must receive a proprietary interest in the acquiring corporation. This means that target shareholders must receive at least 40% of acquiring's stock. 
C)  Substantially all of the target's assets must be transferred to the acquiring corporation. This means at least 90% of the net asset value. 
D)  Assumption of all liabilities for a "Type A" reorganization includes unknown and contingent liabilities. 
E)  None of the above statements is true. 
A)  At least 80% of the acquiring corporation's consideration must be voting stock but the other 20% can be cash or preferred stock. 
B)  The target shareholders must receive a proprietary interest in the acquiring corporation. This means that target shareholders must receive at least 40% of acquiring's stock. 
C)  Substantially all of the target's assets must be transferred to the acquiring corporation. This means at least 90% of the net asset value. 
D)  Assumption of all liabilities for a "Type A" reorganization includes unknown and contingent liabilities. 
E)  None of the above statements is true.

Question 14

Federal bankruptcy legislation created the reorganization. To qualify for this type of reorganization, the corporation must be before the reorganization.

Accepted Answer

The answer of Federal bankruptcy legislation created the reorganization. To...

Question 15

Explain whether shareholders are exempted from gain/loss recognition in nontaxable corporate reorganization or the gain/loss recognition is merely postponed. If postponed, what is the vehicle for ensuring the postponed gain/loss will be recognized in the future?

Accepted Answer

In reorganizations neither gain nor loss

Question 16

The term "reorganization" refers to any restructuring that will be tax­free under Code section
_________________________.

Accepted Answer

The answer of The term "reorganization" refers to any restructuring...

Question 17

Match the following items with the statements below. Terms may be used more than once.
a. Boot
b. Business credits
c. Capital gain
d. Continuity of business enterprise
e. Continuity of interest
f. Dividend
g. Discount rate
h. Earnings and profits
i. Equity structure shift
j. Federal long-term tax-exempt rate
k. Liability assumption
l. Ordinary gain
m. Owner shift
n. Ownership change
o. Section 382 limitation
p. Sound business purpose
q. Step transaction
-Can be treated as boot if cash as well as voting stock is the consideration used by the acquiring corporation in a "Type C" reorganization.

Accepted Answer

The answer of Match the following items with the statements...

Question 18

Match the following items with the statements below. Terms may be used more than once.
a. Boot
b. Business credits
c. Capital gain
d. Continuity of business enterprise
e. Continuity of interest
f. Dividend
g. Discount rate
h. Earnings and profits
i. Equity structure shift
j. Federal long-term tax-exempt rate
k. Liability assumption
l. Ordinary gain
m. Owner shift
n. Ownership change
o. Section 382 limitation
p. Sound business purpose
q. Step transaction
-Any asset other than stock or securities received by the target shareholders.

Accepted Answer

The answer of Match the following items with the statements...

Question 19

The determination of whether a shareholder's gain qualifies for stock redemption treatment in a corporate reorganization is based on the reduction in the percentage of the stock held in the target corporation when compared to the percentage held in the acquiring corporation.

Accepted Answer

A) True 
 B)False

Question 20

The Long Corporation has $500,000 of assets with a basis of $350,000 and liabilities of $125,000. ShortCo acquires Long's assets and $100,000 of liabilities by exchanging $400,000 of its voting stock. Long distributes the ShortCo stock and remaining liabilities to its shareholder in exchange for her Long stock with a basis of $275,000 and then it liquidates. Which, if any, of the following statements is correct?

Accepted Answer

A)  This restructuring qualifies as a "Type A" reorganization with no recognized gains or losses. 
B)  This restructuring qualifies as a "Type C" reorganization with no recognized gains or losses. 
C)  This qualifies as either a "Type A" or "Type C" and the shareholder has a $25,000 recognized gain. 
D)  The restructuring is taxable because liabilities cannot be distributed to shareholders in a tax-free reorganization. 
E)  None of the above statements is correct. 
A)  This restructuring qualifies as a "Type A" reorganization with no recognized gains or losses. 
B)  This restructuring qualifies as a "Type C" reorganization with no recognized gains or losses. 
C)  This qualifies as either a "Type A" or "Type C" and the shareholder has a $25,000 recognized gain. 
D)  The restructuring is taxable because liabilities cannot be distributed to shareholders in a tax-free reorganization. 
E)  None of the above statements is correct.

Without evidence to the contrary, the IRS views transactions occurring within one year of a reorganization as part of the restructuring.

Discuss the role of letter rulings in corporate reorganizations.

Obtaining a positive letter ruling from the IRS can ensure the desired tax treatment for parties contemplating a corporate reorganization.

Since the "Type B" reorganization precludes the use of , gain or loss is not recognized. In this type of reorganization, a relationship between the acquiring and target corporations is created.

When a corporation has cancellationofdebt relief in a "Type G" reorganization, the corporation reduces its benefits in tax items such as earnings and profits.

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

An exchange of common stock for preferred stock or bonds for preferred stock can qualify as a "Type E" reorganization.

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

Federal bankruptcy legislation created the reorganization. To qualify for this type of reorganization, the corporation must be before the reorganization.

Explain whether shareholders are exempted from gain/loss recognition in nontaxable corporate reorganization or the gain/loss recognition is merely postponed. If postponed, what is the vehicle for ensuring the postponed gain/loss will be recognized in the future?

The term "reorganization" refers to any restructuring that will be taxfree under Code section _________________________.

The determination of whether a shareholder's gain qualifies for stock redemption treatment in a corporate reorganization is based on the reduction in the percentage of the stock held in the target corporation when compared to the percentage held in the acquiring corporation.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S: Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 7: Corporations: Reorganizations

Without evidence to the contrary, the IRS views transactions occurring within one year of a reorganization as part of the restructuring.

Discuss the role of letter rulings in corporate reorganizations.

Obtaining a positive letter ruling from the IRS can ensure the desired tax treatment for parties contemplating a corporate reorganization.

Since the "Type B" reorganization precludes the use of , gain or loss is not recognized. In this type of reorganization, a relationship between the acquiring and target corporations is created.

When a corporation has cancellation­of­debt relief in a "Type G" reorganization, the corporation reduces its benefits in tax items such as earnings and profits.

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

An exchange of common stock for preferred stock or bonds for preferred stock can qualify as a "Type E" reorganization.

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

Federal bankruptcy legislation created the reorganization. To qualify for this type of reorganization, the corporation must be before the reorganization.

Explain whether shareholders are exempted from gain/loss recognition in nontaxable corporate reorganization or the gain/loss recognition is merely postponed. If postponed, what is the vehicle for ensuring the postponed gain/loss will be recognized in the future?

The term "reorganization" refers to any restructuring that will be tax­free under Code section _________________________.

The determination of whether a shareholder's gain qualifies for stock redemption treatment in a corporate reorganization is based on the reduction in the percentage of the stock held in the target corporation when compared to the percentage held in the acquiring corporation.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S: Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

When a corporation has cancellationofdebt relief in a "Type G" reorganization, the corporation reduces its benefits in tax items such as earnings and profits.

The term "reorganization" refers to any restructuring that will be taxfree under Code section _________________________.