Question 1

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.
State the type of reorganization,if any,for which these transactions qualify.Assuming that the special election regarding asset basis is elected,compute NewCo's basis in its assets and the amount of tax benefit carryovers NewCo will have available.

Accepted Answer

The answer of NewCo received all of DebtCo's assets (value...

Question 2

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

Accepted Answer

The answer of The acquisitive "Type D" reorganization differs from...

Question 3

Discuss the treatment of accumulated earnings and profits (E & P)in a corporate reorganization when both corporations have positive E & P and when the target corporation has a negative E & P.

Accepted Answer

The answer of Discuss the treatment of accumulated earnings and...

Question 4

If the acquiring corporation purchased 25% of target stock for cash ten years ago,the acquiring corporation cannot meet the "Type C" reorganization requirement that 80% of the target's assets be acquired with stock requirement.

Accepted Answer

A) True 
 B)False

Question 5

Xian Corporation and Win Corporation would like to combine into one entity.Win redeems 90% of its common stock and all of its nonvoting preferred stock to exchange for 40% of Xian's common and 20% of its nonvoting preferred stock.Win then distributes the Xian stock to its shareholders.Win then becomes a subsidiary of Xian.

Accepted Answer

A) This is a taxable transaction. 
B) This restructuring will qualify as a divisive "Type D" reorganization. 
C) This restructuring will qualify as a "Type B" reorganization. 
D) This restructuring will qualify as a "Type E" reorganization. 
E) This restructuring qualifies as a nontaxable § 368 reorganization.

Question 6

The acquiring corporation in a "Type G" reorganization reduces the tax attributes carried over from the bankrupt corporation by the percentage in change in ownership.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) Assets are transferred from one corporation to another. 
B) Stock is exchanged with shareholders. 
C) Liabilities that are assumed when cash is also used as consideration will be treated as boot. 
D) Corporations and shareholders involved in the reorganization may recognize gains but not losses. 
E) None of the above statements is true.

Question 9

A "Type A" reorganization that is the union of two or more corporations with one retaining its existence is called a ____________________.A ____________________ is when a new corporation is created to take the place of two or more corporations.

Accepted Answer

The answer of A "Type A" reorganization that is the...

Question 10

Which of the following statements is true regarding the tax benefits from a loss corporation's carryovers that are taken in the current year?

Accepted Answer

A) The § 382 yearly limitation is applied first to the NOL and capital loss carryovers,then built-in losses,and lastly to credit carryovers. 
B) If the maximum allowable by the § 382 limitation cannot be used in the current year due to not enough income earned by the successor corporation,the unused portion can be carried back to years that have occurred since the reorganization. 
C) None of the loss tax attributes will be available to the successor if the continuity of interest requirement is not met for at least two years. 
D) The IRS can apply § 269 to allow loss carryovers when there is no tax evasion motive in acquiring a loss corporation. 
E) None of the above statements is true.

Question 11

In which type of divisive corporate reorganization do the shareholders receive stock in another corporation and relinquish a percentage of their stock in the original corporation?

Accepted Answer

A) "Type A" consolidation reorganization. 
B) "Type D" split-up reorganization. 
C) "Type D" split-off reorganization. 
D) "Type D" spin-off reorganization. 
E) Some other type of reorganization.

Question 12

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?

Accepted Answer

A) $12,500. 
B) $50,000. 
C) $100,000. 
D) $250,000. 
E) None of the above.

Question 13

Present Value Tables needed for this question.Avocado Corporation wants to acquire Tomato Corporation because their businesses are complementary and Tomato has unused business credits of $63,000.Avocado is a manufacturer with a basis in its assets of $2.4 million (value of $3.1 million)and liabilities of $600,000.It is in the 35% tax bracket and uses a 10% discount factor when making investments.However,the Federal long-term tax-exempt rate is only 5%.Tomato is a distributor of a variety of products including those of Avocado's.Its basis in its assets is $2 million (value of $1.5 million)and has liabilities of $400,000.Avocado is willing to acquire only $1 million of Tomato's assets and all its liabilities for stock and $100,000 cash.Tomato will distribute its remaining assets,cash,and Avocado stock to its shareholders in exchange for their stock and then liquidate.

Accepted Answer

The answer of Present Value Tables needed for this question.Avocado...

Question 14

All of the following statements are true about corporate reorganization except:

Accepted Answer

A) Taxable amounts for shareholders are classified as a dividend or capital gain. 
B) Reorganizations receive treatment similar to corporate formations under § 351. 
C) The transfers of stock to and from shareholders qualify for like-kind exchange treatment. 
D) The value of the stock received by the shareholder less the gain not recognized (postponed)will equal the shareholder's basis in the stock received. 
E) All of the above statements are true.

Question 15

What will cause the corporations involved in a § 368 reorganization to recognize gain or loss? What will cause shareholders of the companies involved in the corporate reorganization to recognize gain or loss? If gain is recognized by shareholders,what are the different tax character possibilities?

Accepted Answer

The answer of What will cause the corporations involved in...

Question 16

The ____________________ doctrine ensures that the acquiring corporation cannot immediately sell the target corporation assets it receives in the reorganization.The ____________________ doctrine also prevents transactions that appear to be sales from qualifying as nontaxable reorganizations.However,these are sales by the target shareholders to the acquiring corporation.

Accepted Answer

The answer of The ____________________ doctrine ensures that the acquiring...

Question 17

When the § 382 limitation is evoked,the acquiring corporation is limited in its use of tax loss carryover attributes of the loss corporation.The limitation is based on the value of the loss corporation times the Federal long-term tax-exempt rate.

Accepted Answer

A) True 
 B)False

Question 18

GreenCo transfers $400,000 of its common voting stock and $50,000 cash to CurryCo in exchange for 80% of CurryCo's assets.CurryCo uses all of its remaining assets and the cash received from GreenCo to pay its liabilities.CurryCo then distributes the GreenCo stock to its shareholders in exchange for all of their shares of CurryCo.Lastly,CurryCo liquidates.This restructuring qualifies as a:

Accepted Answer

A) "Type A" reorganization. 
B) "Type B" reorganization. 
C) "Type C" reorganization. 
D) "Type D" reorganization. 
E) Taxable exchange.

Question 19

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

Accepted Answer

The answer of When tax attributes are carried over from...

Question 20

If the successor corporation's current-year taxable income is not sufficient to utilize the full § 382 limitation on carryovers,the amount not utilized is carried forward and added to the next year's limitation.

Accepted Answer

A) True 
 B)False

Exam 7: Corporations: Reorganizations

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

Discuss the treatment of accumulated earnings and profits (E & P)in a corporate reorganization when both corporations have positive E & P and when the target corporation has a negative E & P.

If the acquiring corporation purchased 25% of target stock for cash ten years ago,the acquiring corporation cannot meet the "Type C" reorganization requirement that 80% of the target's assets be acquired with stock requirement.

The acquiring corporation in a "Type G" reorganization reduces the tax attributes carried over from the bankrupt corporation by the percentage in change in ownership.

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.

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

A "Type A" reorganization that is the union of two or more corporations with one retaining its existence is called a .A is when a new corporation is created to take the place of two or more corporations.

Which of the following statements is true regarding the tax benefits from a loss corporation's carryovers that are taken in the current year?

In which type of divisive corporate reorganization do the shareholders receive stock in another corporation and relinquish a percentage of their stock in the original corporation?

All of the following statements are true about corporate reorganization except:

What will cause the corporations involved in a § 368 reorganization to recognize gain or loss? What will cause shareholders of the companies involved in the corporate reorganization to recognize gain or loss? If gain is recognized by shareholders,what are the different tax character possibilities?

When the § 382 limitation is evoked,the acquiring corporation is limited in its use of tax loss carryover attributes of the loss corporation.The limitation is based on the value of the loss corporation times the Federal long-term tax-exempt rate.

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

If the successor corporation's current-year taxable income is not sufficient to utilize the full § 382 limitation on carryovers,the amount not utilized is carried forward and added to the next year's limitation.