Question 1

When a corporation has cancellation-of-debt 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 2

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 change occurs.

Accepted Answer

The answer of The ____________________ provides a restriction on the...

Question 3

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.

Question 4

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.

Question 5

Mars Corporation merges into Jupiter Corporation by exchanging all of its assets for 300,000 shares of Jupiter stock valued at $2 per share and $100,000 cash. Wanda, the sole shareholder of Mars, surrenders her Mars stock (basis $900,000) and receives all of the Jupiter stock transferred to Mars plus the $100,000. How does Wanda treat this transaction on her tax return?

Accepted Answer

A)  Wanda recognizes a $100,000 gain. Her Jupiter stock basis is $900,000. 
B)  Wanda recognizes a loss of $100,000. Her Jupiter stock basis is $800,000. 
C)  Wanda recognizes a $100,000 gain. Her Jupiter stock basis is $700,000. 
D)  Wanda realizes a $200,000 loss of which $100,000 is recognized. Her Jupiter stock basis is $1 million. 
E)  None of the above.

Question 6

When applying the § 382 limitation to deductible losses and credits, the § 382 limit first is applied to capital loss carryovers, and then to NOLs.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

In a "Type B" reorganization, the acquiring corporation obtains control by exchanging common and preferred stock in the same percentages as the target's outstanding common and preferred stock.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

The answer of The acquiring corporation in a "Type G"...

Question 10

Monal Corporation merged with Bobwhite Corporation two years ago. At the time of the merger, Monal held an earnings and profits (E & P) deficit of $250,000 and Bobwhite had a positive E & P of $200,000. Last year's current E & P was $ 100,000 for the successor company. Despite having only $10,000 E & P for the current year, Monal makes a distribution to its shareholders of $270,000. How is the distribution taxed to the shareholders?

Accepted Answer

A)  $270,000 is taxable. 
B)  $200,000 is taxable. 
C)  $110,000 is taxable. 
D)  $50,000 is taxable. 
E)  None of the above amounts is correct.

Question 11

In a ____________________ reorganization, the original corporation must receive at least 80% percent of new corporations' stock. The assets transferred to the new corporations must have been owned and conducted as a trade or business for at least ____________________ years.

Accepted Answer

The answer of In a ____________________ reorganization, the original corporation...

Question 12

The year in which the ownership change 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.

Accepted Answer

A) True 
 B)False

Question 13

The gains shareholders recognize as a part of a corporate reorganization may be treated a dividend to the extent of the corporation's E & P.

Accepted Answer

A) True 
 B)False

Question 14

For a corporate restructuring to qualify as a tax-free reorganization, the step transaction doctrine must apply.

Accepted Answer

A) True 
 B)False

Question 15

Acquiring Corporation transfers $500,000 stock and land with a value of $400,000 (basis of $250,000) to Target for most of its assets. The assets not acquired in the "Type A" reorganization are distributed to Target's shareholder, Tia. They are valued at $100,000 (basis of $120,000). Acquiring stock and the land also are distributed to Tia in exchange for her stock in Target. Tia's basis in her stock is $650,000. What is the gain or loss recognized by Acquiring, Target, and Tia on this restructuring? What is Tia's basis in the Acquiring stock?

Accepted Answer

The answer of Acquiring Corporation transfers $500,000 stock and land...

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

While a "Type B" reorganization requires that voting stock be used by the acquiring corporation, in a "Type A," the acquiring can use common or preferred stock and still have the restructuring meet the qualifications of § 368.

Accepted Answer

A) True 
 B)False

Question 18

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.

Question 19

The tax treatment of reorganizations almost parallels the Federal income tax treatment for like-kind exchanges.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 7: Corporations: Reorganizations

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

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 change occurs.

Which of the following statements is false?

When applying the § 382 limitation to deductible losses and credits, the § 382 limit first is applied to capital loss carryovers, and then to NOLs.

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.

In a "Type B" reorganization, the acquiring corporation obtains control by exchanging common and preferred stock in the same percentages as the target's outstanding common and preferred stock.

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

In a reorganization, the original corporation must receive at least 80% percent of new corporations' stock. The assets transferred to the new corporations must have been owned and conducted as a trade or business for at least years.

The year in which the ownership change 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.

The gains shareholders recognize as a part of a corporate reorganization may be treated a dividend to the extent of the corporation's E & P.

For a corporate restructuring to qualify as a tax-free reorganization, the step transaction doctrine must apply.

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.

While a "Type B" reorganization requires that voting stock be used by the acquiring corporation, in a "Type A," the acquiring can use common or preferred stock and still have the restructuring meet the qualifications of § 368.

The tax treatment of reorganizations almost parallels the Federal income tax treatment for like-kind exchanges.

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