Question 1

Which of the following statements is false?

Accepted Answer

A) A "Type B" reorganization is most likely to run afoul of the continuity of interest doctrine because the target remains a separate corporation. 
B) Liabilities are problematic for "Type A" and "Type C" reorganizations. 
C) The step transaction doctrine can be problematic in acquisitive "Type D" and "Type C" reorganizations. 
D) "Type E" and "Type F" are not likely to be subject to the § 382 limitation. 
E) All of the statements are true. 
A) A "Type B" reorganization is most likely to run afoul of the continuity of interest doctrine because the target remains a separate corporation. 
B) Liabilities are problematic for "Type A" and "Type C" reorganizations. 
C) The step transaction doctrine can be problematic in acquisitive "Type D" and "Type C" reorganizations. 
D) "Type E" and "Type F" are not likely to be subject to the § 382 limitation. 
E) All of the statements are true.

Question 2

Contra Corporation is owned 50% by Terry and 50% by Sammy.Due to news articles damaging Contra's reputation,Terry and Sammy decide to liquidate Contra,which has been in existence for 4 years.They create Alpha and Beta Corporations to receive all of the manufacturing assets of Contra's two picture frame plants.Alpha receives the urban plant manufacturing assets and Beta receives the country manufacturing plant.Terry receives 60% Alpha stock and 40% of the Beta stock and Sammy receives 40% Alpha stock and 60% of the Beta stock.Terry and Sammy turn in their Contra stock and Contra then liquidates.Assuming all other requirements are met,how will this transaction be treated for tax purposes?

Accepted Answer

A) As a taxable transaction. 
B) As a "Type A" deconsolidation. 
C) As a "Type D" split-off reorganization. 
D) As a "Type D" split-up reorganization. 
E) None of the above. 
A) As a taxable transaction. 
B) As a "Type A" deconsolidation. 
C) As a "Type D" split-off reorganization. 
D) As a "Type D" split-up reorganization. 
E) None of the above.

Question 3

Against the will of Rally Corporation's management,Buoy Corporation offers Rally's shareholders 2 shares of Buoy common stock for each share of Rally common and 50 shares of Buoy common for each share of Rally preferred.The results of a hostile takeover yield Buoy 85% of Rally common stock and 100% of the preferred.The only stock it did not obtain was that owned by management.This transaction qualifies as a(n):

Accepted Answer

A) "Type A" consolidation. 
B) "Type B" reorganization. 
C) "Type D" split-up reorganization. 
D) Acquisitive "Type D" reorganization. 
E) Taxable event. 
A) "Type A" consolidation. 
B) "Type B" reorganization. 
C) "Type D" split-up reorganization. 
D) Acquisitive "Type D" reorganization. 
E) Taxable event.

Question 4

Which of the following statements is true?

Accepted Answer

A) The dollar amounts involved in reorganizations are generally substantial;thus,it is important that the financial and tax treatment of the reorganization is consistent. 
B) A letter ruling indicates the income tax treatment the IRS will apply to the proposed corporate restructuring transaction. 
C) Careful planning can ensure that all gains recognized by individual shareholders receive beneficial dividend treatment. 
D) Corporations prefer to recognize capital gains on reorganizations because they can offset the capital losses they may have. 
E) None of the statements is true. 
A) The dollar amounts involved in reorganizations are generally substantial;thus,it is important that the financial and tax treatment of the reorganization is consistent. 
B) A letter ruling indicates the income tax treatment the IRS will apply to the proposed corporate restructuring transaction. 
C) Careful planning can ensure that all gains recognized by individual shareholders receive beneficial dividend treatment. 
D) Corporations prefer to recognize capital gains on reorganizations because they can offset the capital losses they may have. 
E) None of the statements is true.

Question 5

Dahlia owns $100,000 in Fuchsia bonds.The interest rate on the bonds is a 4% yearly rate.She exchanges these bonds for $60,000 in Fuchsia bonds paying a 6% yearly rate and $40,000 in Fuchsia preferred stock with a 4% dividend.How is this transaction treated for tax purposes?

Accepted Answer

A) All of this transaction is taxable. 
B) Only the exchange of the bond for the preferred stock is a taxable transaction. 
C) Only the exchange of the 4% bond for a 6% is taxable because the interest rate increased. 
D) None of the transaction is taxable because it qualifies as a "Type E" reorganization. 
E) None of the above. 
A) All of this transaction is taxable. 
B) Only the exchange of the bond for the preferred stock is a taxable transaction. 
C) Only the exchange of the 4% bond for a 6% is taxable because the interest rate increased. 
D) None of the transaction is taxable because it qualifies as a "Type E" reorganization. 
E) None of the above.

Question 6

One of the tenets of the U.S.tax policy is to ____________________ business development.As an extension of this concept,corporate restructurings are given ____________________ treatment.
or

Accepted Answer

encourage,

Question 7

Racket Corporation and Laocoon Corporation create Raccoon Corporation.Racket transfers $600,000 in assets for all of Raccoon's common stock.Racket distributes its remaining assets ($300,000)and the Raccoon common stock to its shareholder,Mia,for all of her stock in Racket (basis $950,000)and then liquidates.Laocoon receives all of the preferred stock for its $400,000 of assets.Laocoon distributes its remaining assets ($300,000)and the Raccoon preferred stock to its shareholder,Carlos,for all of his stock in Laocoon (basis $200,000)and then liquidates.How will this transaction be treated for tax purposes?

Accepted Answer

A) This qualifies as a "Type A" reorganization.Mia recognizes no gain or loss,but Carlos recognizes $300,000 gain. 
B) This qualifies as a "Type C" reorganization.Mia and Carlos recognize $300,000 gain,to the extent of the boot. 
C) This qualifies as a "Type D" reorganization.Neither Mia nor Carlos recognizes a gain or loss. 
D) This is a taxable transaction.Mia recognizes $50,000 loss and Carlos recognizes $500,000 gain. 
E) None of the above. 
A) This qualifies as a "Type A" reorganization.Mia recognizes no gain or loss,but Carlos recognizes $300,000 gain. 
B) This qualifies as a "Type C" reorganization.Mia and Carlos recognize $300,000 gain,to the extent of the boot. 
C) This qualifies as a "Type D" reorganization.Neither Mia nor Carlos recognizes a gain or loss. 
D) This is a taxable transaction.Mia recognizes $50,000 loss and Carlos recognizes $500,000 gain. 
E) None of the above.

Question 8

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.

Accepted Answer

A) This transaction qualifies as a "Type F" reorganization. 
B) This transaction qualifies as a "Type E" reorganization. 
C) This move has no tax significance for Federal purposes. 
D) This is treated as a liquidation of Western and incorporation of Southern.Thus,gain can be recognized on the liquidation of Western. 
E) None of the above. 
A) This transaction qualifies as a "Type F" reorganization. 
B) This transaction qualifies as a "Type E" reorganization. 
C) This move has no tax significance for Federal purposes. 
D) This is treated as a liquidation of Western and incorporation of Southern.Thus,gain can be recognized on the liquidation of Western. 
E) None of the above.

Question 9

The "Type B" reorganization requires a continuity of business interest.Therefore,the acquiring corporation must obtain at least 40% of target corporation's stock through the reorganization.

Accepted Answer

A) True 
 B)False

Question 10

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?

Accepted Answer

A) This transaction qualifies as a "Type G" reorganization. 
B) LouderCo can utilize the full amount of Loser's NOL and capital loss carryover,if it elects to reduce the basis in the transferred depreciable assets by the amount of the debt relief it receives. 
C) Dai Won must receive a controlling interest in LouderCo for the restructuring to qualify as a tax-free reorganization. 
D) The bondholders of Loser become shareholders of LouderCo. 
E) All of the above statements are true. 
A) This transaction qualifies as a "Type G" reorganization. 
B) LouderCo can utilize the full amount of Loser's NOL and capital loss carryover,if it elects to reduce the basis in the transferred depreciable assets by the amount of the debt relief it receives. 
C) Dai Won must receive a controlling interest in LouderCo for the restructuring to qualify as a tax-free reorganization. 
D) The bondholders of Loser become shareholders of LouderCo. 
E) All of the above statements are true.

Question 11

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?

Accepted Answer

A) Xin recognizes no gain or loss on the exchange of bonds. 
B) Xin recognizes $750 gain each year for the next 8 years. 
C) Xin recognizes $6,000 capital gain. 
D) Xin recognizes $6,000 ordinary gain. 
E) None of the above. 
A) Xin recognizes no gain or loss on the exchange of bonds. 
B) Xin recognizes $750 gain each year for the next 8 years. 
C) Xin recognizes $6,000 capital gain. 
D) Xin recognizes $6,000 ordinary gain. 
E) None of the above.

Question 12

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?

Accepted Answer

A) As a split-up "Type D" reorganization. 
B) As a split-off "Type D" reorganization. 
C) As a spin-off "Type D" reorganization. 
D) This transaction does not qualify as a reorganization,because Dirty does not have two active lines of business. 
E) None of the above. 
A) As a split-up "Type D" reorganization. 
B) As a split-off "Type D" reorganization. 
C) As a spin-off "Type D" reorganization. 
D) This transaction does not qualify as a reorganization,because Dirty does not have two active lines of business. 
E) None of the above.

Question 13

____________________ is other property received along with stock in a restructuring falling under § 368.If the shareholders receive the other property,it can be taxed as ____________________ or ____________________.
.
or

Accepted Answer

boot,capit

Question 14

Weaver Corporation has net assets valued at $800,000 and an NOL of $250,000.On September 30 of the current year,Weaver is acquired by Loom Corporation,a calendar year taxpayer,in a restructuring qualifying as a tax-free reorganization.Weaver shareholders receive 30% of Loom's shares in exchange for all of their Weaver stock.Assuming that the Federal long-term tax-exempt rate is 8%,what is the maximum amount of Weaver's NOL available to Loom in the current year?

Accepted Answer

A) $250,000. 
B) $240,000. 
C) $75,000. 
D) $64,000. 
E) None of the above. 
A) $250,000. 
B) $240,000. 
C) $75,000. 
D) $64,000. 
E) None of the above.

Question 15

The distinguishing characteristic of a "Type D" reorganization is the acquiring corporation is the one transferring assets to the target corporation in exchange for a controlling interest in the target.

Accepted Answer

A) True 
 B)False

Question 16

When substantially all of the assets of the target corporation are received in exchange for voting stock and selected liabilities,the restructuring can qualify as a "Type C" reorganization.

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

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

Question 18

The yearly § 382 limitation is computed by multiplying the ____________________ of the loss corporation's stock on the ____________________ date by the ____________________.For the ____________________,the § 382 limitation must be multiplied by the fraction equal to the number of days remaining in the year divided by days in the year.
or
or

Accepted Answer

fair market value (FMV,change

Question 19

Vintage Corporation has four shareholders: Robin,Quinton,Paula,and Orvil.Paula and Orvil started the business 10 years ago,and Robin and Quinton bought their stock 6 years ago.Vintage's historical business is buying and selling antiques.When Robin and Quinton joined Vintage,it added a new business,trading in collectibles. Lately,there has been a disagreement about the future of Vintage.Orvil and Quinton are not interested in collectibles,but Robin and Paula enjoy this part of the business.To resolve this issue,Paula suggests that two new corporations be created,Antique and Collectible.Antique would receive all of the assets of the antique part of the business,and Collectible would receive all of the assets of the collecting part of Vintage.All of the stock of these two corporations would be received by Vintage and distributed to the appropriate shareholders.Vintage would then terminate.

Accepted Answer

A) The transaction qualifies as a spin-off "Type D" reorganization. 
B) The transaction qualifies as a split-off "Type D" reorganization. 
C) The transaction qualifies as a split-up "Type D" reorganization. 
D) The transaction is taxable. 
E) None of the above. 
A) The transaction qualifies as a spin-off "Type D" reorganization. 
B) The transaction qualifies as a split-off "Type D" reorganization. 
C) The transaction qualifies as a split-up "Type D" reorganization. 
D) The transaction is taxable. 
E) None of the above.

Question 20

A tax avoidance motive is essential in establishing a sound business purpose.

Accepted Answer

A) True 
 B)False

Which of the following statements is false?

Which of the following statements is true?

Dahlia owns $100,000 in Fuchsia bonds.The interest rate on the bonds is a 4% yearly rate.She exchanges these bonds for $60,000 in Fuchsia bonds paying a 6% yearly rate and $40,000 in Fuchsia preferred stock with a 4% dividend.How is this transaction treated for tax purposes?

One of the tenets of the U.S.tax policy is to business development.As an extension of this concept,corporate restructurings are given treatment. or

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.

The "Type B" reorganization requires a continuity of business interest.Therefore,the acquiring corporation must obtain at least 40% of target corporation's stock through the reorganization.

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?

is other property received along with stock in a restructuring falling under § 368.If the shareholders receive the other property,it can be taxed as or . . or

The distinguishing characteristic of a "Type D" reorganization is the acquiring corporation is the one transferring assets to the target corporation in exchange for a controlling interest in the target.

When substantially all of the assets of the target corporation are received in exchange for voting stock and selected liabilities,the restructuring can qualify as a "Type C" reorganization.

The yearly § 382 limitation is computed by multiplying the of the loss corporation's stock on the date by the .For the ,the § 382 limitation must be multiplied by the fraction equal to the number of days remaining in the year divided by days in the year. or or

A tax avoidance motive is essential in establishing a sound business purpose.

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

Which of the following statements is false?

Which of the following statements is true?

Dahlia owns $100,000 in Fuchsia bonds.The interest rate on the bonds is a 4% yearly rate.She exchanges these bonds for $60,000 in Fuchsia bonds paying a 6% yearly rate and $40,000 in Fuchsia preferred stock with a 4% dividend.How is this transaction treated for tax purposes?

One of the tenets of the U.S.tax policy is to ____________________ business development.As an extension of this concept,corporate restructurings are given ____________________ treatment. or

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.

The "Type B" reorganization requires a continuity of business interest.Therefore,the acquiring corporation must obtain at least 40% of target corporation's stock through the reorganization.

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?

____________________ is other property received along with stock in a restructuring falling under § 368.If the shareholders receive the other property,it can be taxed as ____________________ or ____________________. . or

The distinguishing characteristic of a "Type D" reorganization is the acquiring corporation is the one transferring assets to the target corporation in exchange for a controlling interest in the target.

When substantially all of the assets of the target corporation are received in exchange for voting stock and selected liabilities,the restructuring can qualify as a "Type C" reorganization.

A tax avoidance motive is essential in establishing a sound business purpose.

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

One of the tenets of the U.S.tax policy is to business development.As an extension of this concept,corporate restructurings are given treatment. or

is other property received along with stock in a restructuring falling under § 368.If the shareholders receive the other property,it can be taxed as or . . or