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Exam 7: Corporations: Reorganizations

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Question 31

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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.

A) True
B) False

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Question 32

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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.

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B) False

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Question 33

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

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?

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

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.

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 ____________________ 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.

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.

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?

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?

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?

Which of the following statements is false?

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

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

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?

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.

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.

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

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.