Exam 7: Corporations: Reorganizations

Rabbit Corporation and Fox Corporation would like to merge into one company.Rabbit's only asset is a nontransferable chemical process that has a value of $300,000 and Rabbit has liabilities of $100,000.Fox has the manufacturing plant and experience in the production of Rabbit's chemical process.Its manufacturing plant has a value of $900,000 with a mortgage of $200,000.Which type of reorganization would be the most appropriate for Rabbit and Fox?

The "Type F" corporate reorganization includes changes in name,location,and changing from a taxable C corporation to a flow-through S corporation.

For a "Type C" reorganization,substantially all of the assets means at least ____________________ percent of the net asset value and ____________________ percent of the gross asset value.

The ____________________ provides a restriction on the amount of tax attributes that can be carried over from the target to the acquiring corporation after an ownership shift occurs. or or

ScottishCo is owned by Gordon Bryson and his four nieces and nephews.Gordon owns all the voting stock.He wants to relinquish control;accordingly,ScottishCo redeems all of Gordon's voting common stock and issues him preferred stock and $50,000 in bonds.The nonvoting preferred shares owned by the nieces and nephew are exchanged for voting common stock.Which of the following statements is correct?

For a capital restructuring to qualify as a "Type E," there must be at least a 50% change in the common stock ownership.

The continuity of business enterprise requires that at least 60% of the target's assets are acquired with stock.

The tax treatment of the parties involved in a tax-free reorganization almost exactly parallels the treatment under the ____________________ provisions.When boot is received,____________________ may be recognized but ____________________ is not recognized.

Ula purchased stock in Purple,Inc. ,6 years ago for $150,000.Purple has assets with a value of $225,000 ($175,000 basis)and liabilities of $60,000.Purple transfers $200,000 of assets and all of its liabilities to White Corporation in exchange for White common stock.Purple distributes the White stock and its $25,000 remaining asset (cash)to Ula in exchange for all of her Purple stock.Purple then liquidates.How will this transaction be treated for tax purposes?

The Federal income tax treatment of a corporate restructuring is an extension of allowing entities to form without taxation.

In a divisive "Type D" reorganization,the distributing corporation obtains control of the new target by exchanging some of its assets for at least 80% of the new target's outstanding stock.

Which of the following is not a requirement for receiving tax-free treatment for a corporate reorganization?

The "Type A" corporate reorganization can run afoul of the continuity of interest doctrine more easily than a "Type C," because with a "Type A" the Code does not require that the target shareholders receive common stock of the acquiring corporation in exchange for their ownership of the target.

Gato Corporation exchanged 25% of its stock with Lobo for all of its assets.The Gato stock was distributed to the Lobo shareholders in exchange for all of their stock.Lobo then liquidated.At the time of the acquisition by Gato,the value of Lobo was $3 million,and the Federal long-term tax-exempt rate was 4%.In the current year,Gato has $500,000 of taxable income.Lobo has excess credits from prior years amounting to $150,000.What amount of Lobo's credits may Gato use in computing its Federal income tax for the year,if Gato is in the 34% tax bracket?

Burl Corporation has assets with a value of $500,000 (basis of $300,000)and liabilities of $350,000.Wood Corporation is considering merging with Burl by exchanging 30% of its voting stock and $50,000 cash for Burl.

The year in which the ownership shift occurs for a corporation,the NOL carryforward is limited not only by the § 382 annual limitation,but also by the percentage of the year remaining.

Provide the formula for the § 382 limitation and demonstrate how the formula is altered for the change year.What is the purpose of the § 382 limitation?

Tin Corporation was created 10 years ago.It currently is valued at $1.5 million as follows: Tacks division ($420,000),Safety Pins division ($580,000),Paper Clips division ($450,000)and investment assets ($50,000).Tin currently has three shareholders: Antonio,who was the initial shareholder and now owns 40% of the stock (basis in stock $350,000),and Beth and Chang,who each purchased 30% of Tin two years ago for $435,000. Tin is having management problems because the shareholders cannot agree on the future of the company.They have determined that it would be best to divide up the company and go their separate ways.Each shareholder feels that the others do not deserve to continue using the Tin Corporation name.

A shareholder bought 2,000 shares of Zee Corporation for $90,000 several years ago.When the stock is valued at $200,000,Zee redeems the shares in exchange for 6,000 shares of Yea Corporation stock and a $20,000 car not wanted by Yea.This transaction meets the requirements of § 368.Which of the following statements is true with regard to this transaction?

A consolidation is the union of two corporations,whereas in a merger a new corporation is formed to receive the assets of two or more corporations.