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Exam 7: Corporations: Reorganizations

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Question 41

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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.

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Question 42

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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.

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.

F) All of the above
G) A) and E)

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Question 43

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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.

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.

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

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.

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.

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:

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.

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.

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?

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?

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?

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.

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.

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

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

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.

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.

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