679. CHAPTER 7CORPORATIONS: REORGANIZATIONS Question MA #1-10
Match the following items with the statements below. Terms may be used more than once.Carries over to new corporations in a split-up reorganization.A 50 percentage-point change in ownership that occurs because of tax-free reorganization.Tax avoidance is not enough; transaction must have a corporate economic consequence.Requires the computation of a deduction equivalent when determining its limitation.Rate used to determine the § 382 limitation.When the transactions are so interdependent that the accomplishment of one would be fruitless without the completion of the series.Shareholders recognize gain to the extent the restructuring qualifies as a redemption.Any asset other than stock or securities received by the target shareholders.Requires at least a 40% carryover ownership by target shareholders.Can be treated as boot if cash as well as voting stock is the consideration used by the acquiring corporation in a Type C reorganization.Earnings and profits Equity structure shift Sound business purpose Business credits Federal long-term tax-exempt rate Step transaction Capital gain Boot Continuity of interest Liability assumption Continuity of business enterprise Dividend Discount rate Ordinary gain Owner shift Ownership change Section 382 limitation
1. Carries over to new corporations in a split-up reorganization.
2. A 50 percentage-point change in ownership that occurs because of tax-free reorganization.
3. Tax avoidance is not enough; transaction must have a corporate economic consequence.
4. Requires the computation of a deduction equivalent when determining its limitation.
5. Rate used to determine the § 382 limitation.
6. When the transactions are so interdependent that the accomplishment of one would be fruitless without the completion of the series.
7. Shareholders recognize gain to the extent the restructuring qualifies as a redemption.
8. Any asset other than stock or securities received by the target shareholders.
9. Requires at least a 40% carryover ownership by target shareholders.
10. Can be treated as boot if cash as well as voting stock is the consideration used by the acquiring corporation in a Type C reorganization.
a. Earnings and profits
b. Equity structure shift
c. Sound business purpose
d. Business credits
e. Federal long-term tax-exempt rate
f. Step transaction
g. Capital gain
h. Boot
i. Continuity of interest
j. Liability assumption
k. Continuity of business enterprise
l. Dividend
m. Discount rate
n. Ordinary gain
o. Owner shift
p. Ownership change
q. Section 382 limitation
680. CHAPTER 7CORPORATIONS: REORGANIZATIONS Question MA #11-20
What type of reorganization is affected in each of the following independent transactions?Red and Blue Corporations are merged under state law into a new corporation, White Corporation. The White voting common (70% of value) and nonvoting preferred stocks (30% of value) are distributed to the Red and Blue shareholders in exchange for all of their voting common and nonvoting preferred stock. Red and Blue then liquidate.In exchange for all of Yellow Corporations voting common and nonvoting preferred stock, Green Corporation transfers 40% of its voting common and nonvoting preferred stock to Yellow. The Green stock is distributed to the Yellow shareholders and then Yellow liquidates. Yellow becomes a subsidiary of Green.Apple Corporation transfers voting stock to Banana Corporation in exchange for substantially all of its assets (value $600,000), $15,000 cash, and assumes $100,000 of Bananas liabilities. Banana distributes the Apple stock and cash to its shareholders in exchange for their Banana stock. Banana then liquidates.Purple Corporation wants to combine with Pink Corporation. Purple transfers substantially all of its assets to Pink for 82% of Pinks voting shares. Purple distributes the Pink stock and its remaining assets to its shareholders in exchange for their Purple stock. Purple then liquidates. Purples shareholders are in control of Pink Corporation.Black Corporation has been engaged in manufacturing toys for 8 years and tools for 3 years. Black creates Brown Corporation and transfers the toy division to it in exchange for all of Browns common voting stock. Black then distributes the Brown stock to its shareholders.Bark and Wood Corporations are created by Tree Corporation. Tree transfers its calculator business to Bark in exchange for all of Barks stock. Tree distributes the Bark stock to its shareholders in exchange for 60% of their Tree stock. Next, Tree transfers its slide ruler division to Wood for all of its stock. Tree distributes the Wood stock to its shareholders in exchange for their remaining Tree stock. Tree then liquidates. Tree had operated both lines of business for 35 years.Flower Corporation has been in existence for 20 years and has always been owned by Iris and Lilly. They each also own $50,000 of Flowers bonds. All of Lillys bonds are called in and exchanged for $50,000 of preferred stock. Iris does not participation in the transaction.Feather currently has four divisions that have been in existence for 15 years. Feather creates three new corporations and transfers one division to each newly formed corporations in exchange for all of the stock of these new corporations. Feather retains one division. Feather then distributes the stock in the three new corporations to its shareholders in exchange for 75% of their stock in Feather.Snow Corporation desires to change to an S Corporation. On March 1 of the current year, it files all necessary forms with the IRS. The change becomes retroactive to January 1 of the current year.Loser Corporation is considering filing bankruptcy under Chapter 11. Loser transfers all of its assets to NewStart Corporation in exchange for NewStarts stock and $400,000 in cash. Loser uses the cash to pay off most of its liabilities and then distributes the balance to NewStart shareholders and any remaining debtors. After the transaction, Loser liquidates.A reorganization, consolidation Taxable transaction C reorganization Acquisitive D reorganization Taxable transaction D reorganization, split-up E reorganization D reorganization, split-off F reorganization Taxable transaction A reorganization, merger B reorganization D reorganization, spin-off G reorganization
1. Red and Blue Corporations are merged under state law into a new corporation, White Corporation. The White voting common (70% of value) and nonvoting preferred stocks (30% of value) are distributed to the Red and Blue shareholders in exchange for all of their voting common and nonvoting preferred stock. Red and Blue then liquidate.
2. In exchange for all of Yellow Corporations voting common and nonvoting preferred stock, Green Corporation transfers 40% of its voting common and nonvoting preferred stock to Yellow. The Green stock is distributed to the Yellow shareholders and then Yellow liquidates. Yellow becomes a subsidiary of Green.
3. Apple Corporation transfers voting stock to Banana Corporation in exchange for substantially all of its assets (value $600,000), $15,000 cash, and assumes $100,000 of Bananas liabilities. Banana distributes the Apple stock and cash to its shareholders in exchange for their Banana stock. Banana then liquidates.
4. Purple Corporation wants to combine with Pink Corporation. Purple transfers substantially all of its assets to Pink for 82% of Pinks voting shares. Purple distributes the Pink stock and its remaining assets to its shareholders in exchange for their Purple stock. Purple then liquidates. Purples shareholders are in control of Pink Corporation.
5. Black Corporation has been engaged in manufacturing toys for 8 years and tools for 3 years. Black creates Brown Corporation and transfers the toy division to it in exchange for all of Browns common voting stock. Black then distributes the Brown stock to its shareholders.
6. Bark and Wood Corporations are created by Tree Corporation. Tree transfers its calculator business to Bark in exchange for all of Barks stock. Tree distributes the Bark stock to its shareholders in exchange for 60% of their Tree stock. Next, Tree transfers its slide ruler division to Wood for all of its stock. Tree distributes the Wood stock to its shareholders in exchange for their remaining Tree stock. Tree then liquidates. Tree had operated both lines of business for 35 years.
7. Flower Corporation has been in existence for 20 years and has always been owned by Iris and Lilly. They each also own $50,000 of Flowers bonds. All of Lillys bonds are called in and exchanged for $50,000 of preferred stock. Iris does not participation in the transaction.
8. Feather currently has four divisions that have been in existence for 15 years. Feather creates three new corporations and transfers one division to each newly formed corporations in exchange for all of the stock of these new corporations. Feather retains one division. Feather then distributes the stock in the three new corporations to its shareholders in exchange for 75% of their stock in Feather.
9. Snow Corporation desires to change to an S Corporation. On March 1 of the current year, it files all necessary forms with the IRS. The change becomes retroactive to January 1 of the current year.
10. Loser Corporation is considering filing bankruptcy under Chapter 11. Loser transfers all of its assets to NewStart Corporation in exchange for NewStarts stock and $400,000 in cash. Loser uses the cash to pay off most of its liabilities and then distributes the balance to NewStart shareholders and any remaining debtors. After the transaction, Loser liquidates.
a. A reorganization, consolidation
b. Taxable transaction
c. C reorganization
d. Acquisitive D reorganization
e. Taxable transaction
f. D reorganization, split-up
g. E reorganization
h. D reorganization, split-off
i. F reorganization
j. Taxable transaction
k. A reorganization, merger
l. B reorganization
m. D reorganization, spin-off
n. G reorganization
681. CHAPTER 7CORPORATIONS: REORGANIZATIONS Question CO #1
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.
682. CHAPTER 7CORPORATIONS: REORGANIZATIONS Question CO #2
To qualify as a tax-free reorganization, a corporate restructuring must meet not only the specific requirements of § 368 but also four general requirements. These four requirements are: ____________________, ____________________, ____________________, and _________________________. In addition, the ____________________ doctrine should not apply to the reorganization.
683. CHAPTER 7CORPORATIONS: REORGANIZATIONS Question CO #3
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.
684. CHAPTER 7CORPORATIONS: REORGANIZATIONS Question CO #4
If stockholders of the corporations involved in a tax-free reorganization receive ____________________ in addition to stock, they may recognize gain. The character of the gain is either ____________________ or ____________________.
685. CHAPTER 7CORPORATIONS: REORGANIZATIONS Question CO #5
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.
686. CHAPTER 7CORPORATIONS: REORGANIZATIONS Question CO #6
Since the ____________________ reorganization precludes the use of boot, gain is not recognized in this type of reorganization. In this reorganization, a ____________________ relationship between the acquiring and target corporations is created.
687. CHAPTER 7CORPORATIONS: REORGANIZATIONS Question CO #7
The Type C reorganization requires that at least ____________________ percent of the value of the targets assets be acquired with ____________________ stock.
688. CHAPTER 7CORPORATIONS: REORGANIZATIONS Question CO #8
The acquisitive Type D reorganization differs from other restructurings in that the entity that transfers its assets is the ____________________ corporation rather than the ____________________ corporation.