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Exam 7: Corporations: Reorganizations

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Question 61

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On March 1,Cream Corporation transfers all of its assets to Coffee Corporation in exchange for 10% of its common voting stock.At the time of the reorganization,Cream has assets valued at $4 million (basis of $3 million)and its earnings and profits account shows a deficit of $650,000.Coffee's earnings and profits as of March 1 were $420,000.Due to the reorganization,Coffee has an NOL for the current year of $150,000.Coffee still declares its usual dividends of $100,000,paid on April 30,August 31,and December 31 ($300,000 of total dividends).

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Question 62

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When a corporation has cancellation-of-debt relief in a "Type G" reorganization,the corporation reduces its benefits in tax attributes such as NOLs and business credits.

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Question 63

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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?

In which type of reorganization could bonds and other liabilities be exchanged for stock and not be treated as boot?

Liabilities generally are not considered boot in corporate reorganizations except in an acquisitive "Type D" when cash or other property is also used in the transaction.

The determination of whether a shareholder's gain qualifies for stock redemption treatment in a corporate reorganization is based on the reduction in the percentage of the stock held in the target corporation when compared to the percentage held in the acquiring corporation.

In corporate reorganizations,an acquiring corporation using property other than stock as consideration may recognize gains but not losses on the transaction.

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

The sound business purpose doctrine and § 269 have the same purpose of disallowing restructurings that are primarily for tax avoidance motives.

Winner Corporation acquires all of Loser Corporation on January 1 of this year for $1 million when the Federal long-term tax-exempt rate was 4%.Two of the tax attributes that Winner found appealing are Loser's NOL of $100,000 and its negative E & P of $150,000.Before applying any of Loser's tax benefits,Winner has taxable income of $75,000 and E & P of $50,000.Winner pays a dividend of $100,000 to its shareholders.Assuming that taxable income is equal to the current year's E & P,how much of this dividend is taxable?

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

In a ____________________ divisive reorganization,some of the stock in the original entity is exchanged for stock in the new corporation.In a ____________________ divisive reorganization,the shareholders do not give up any of their original corporation stock to receive stock in the new corporation,whereas in a ____________________ divisive reorganization,the original distributing corporation disappears.

The amount of gain recognized by a shareholder in a corporate reorganization is based on the shareholder's proportionate share of E & P.

Lyon has 100,000 shares outstanding that are worth $10 per share.It uses 32% of its stock plus $80,000 to acquire Zebra Corporation in a "Type A" reorganization.Zebra's assets are valued at $400,000 and its accumulated earnings and profits are $25,000 at the time of the reorganization.The Lyon shares and cash are distributed to the Zebra shareholders as follows.Jake (owning 62.5% of Zebra)receives 18,000 shares (value $180,000)and $70,000.Kara (owning 37.5% of Zebra)receives 14,000 shares (value $140,000)and $10,000.Jake and Kara each recognize gains to the extent of the cash they received.What is the character of Jake's and Kara's gains?

An equity structure shift occurs when a(n)____________________ causes an ownership change of ____________________ percentage-points for any common shareholders owning at least 5%.A sale or issuance of stock can cause a(n)____________________ to take place.

Burmese Corporation is interested in acquiring Javanese Corporation by transferring 30% of its stock for all of Javanese's assets valued at $500,000 (basis of $150,000) and its $200,000 of liabilities.Javanese has created $50,000 in general business research credits which it cannot use.Javanese concentrates on pharmaceutical research whereas Burmese manufactures sun glasses.Burmese uses a discount factor of 8% and the Federal applicable rate is 4%.Javanese will terminate after the restructuring.How will this transaction be treated for tax purposes?