Deck 7: Corporations: Reorganizations

Question 1

Noncorporate shareholders would prefer to have a gain on a corporate reorganization treated as a capital gain rather than as a dividend,because of the lower tax rates applied to capital gains.

Answer 1

False
Dividends and capital gains are taxed at the same rates.

Question 2

Target liabilities assumed by the acquiring corporation in a "Type C" reorganization are considered boot when cash or other property is exchanged by the acquiring corporation. This is likely to destroy the tax-free treatment.

Answer 2

True

Question 3

The tax treatment of reorganizations almost parallels the treatment given to related party exchanges.

Answer 3

False
The rules for tax-free reorganizations and like-kind exchanges are almost parallel.

Question 4

United States tax policy tries to encourage business development.

Question 5

Currently,spin-offs of unwanted divisions are popular merger and acquisition strategies.

Question 6

A corporate reorganization in the form of an exchange of stock does not qualify as a like-kind exchange.

Question 7

To qualify as a "Type A" reorganization,consolidations must comply with the requirements of foreign,state,or Federal statutes.

Question 8

Determining whether a shareholder's gain on a corporate reorganization can qualify for stock redemption treatment 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.

Question 9

While a "Type A" reorganization allows the acquiring corporation to transfer cash as well as stock,the continuity of interest doctrine requires that all stock transferred be voting common.

Question 10

Shareholders recognize gains and losses if they receive assets other than stock (boot).

Question 11

A consolidation is the union of two corporations whereas,in a merger,a new corporation is formed to receive the assets of two or more corporations.

Question 12

Debt security holders receive similar treatment to shareholders in a corporate reorganization,as long as the face value of the debt relinquished is equal to the debt received.

Question 13

The "Type B" reorganization requires that the acquiring corporation obtain at least 80% of target corporation's stock through the reorganization.

Question 14

In a "Type B" reorganization,voting stock of the acquiring corporation must be the sole consideration exchanged with the target corporation or its shareholders.

Question 15

Originally the courts (in opposition to Congress)determined that businesses should be able to restructure without being subject to taxation.To be consistent with court findings,Congress changed the Code to provide reorganizations with treatment similar to that given under § 351 for starting a corporation.

Question 16

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

Question 17

The home mortgage industry has been particularly active in consolidation reorganizations in recent years.

Question 18

Shareholders receiving other property as a part of a corporate reorganization may be treated as having their stock redeemed under § 302(b)and be in the adverse position of being treated as having sold a capital asset.

Question 19

The basis in the acquiring stock received by the target shareholders is the vehicle for ensuring that any postponed gain is recognized when the stock is sold at a later date.

Question 20

The amount of recognized gain cannot exceed the amount of realized gain.

Question 21

The divisive "Type D" reorganization requires that acquiring corporation form a subsidiary to receive all or part of target corporation's assets in exchange for stock. After the transaction,a parent-subsidiary controlled group exists.

Question 22

A unique characteristic of a "Type G" reorganization is that the liabilities of the target corporation are liquidated and not assumed by the acquiring corporation.

Question 23

The step transaction doctrine is helpful in reorganizations such as a "Type C" and acquisitive "Type D" where all the assets are not desired.

Question 24

The end results of a "Type C" reorganization are very similar to a "Type A" merger,but all liabilities of the target need not be assumed in a "Type C" reorganization.

Question 25

A present value analysis is required to compute the § 382 limitation for any given year.

Question 26

After a tax-free reorganization,the remaining corporation may not combine the earnings and profits (E & P)of the acquiring and target corporations.The E & P of the acquiring corporation may be used for dividend payments only after the target corporation's E & P are fully utilized.

Question 27

In an acquisitive "Type D" reorganization,the target must control (own at least 80 percent of voting stock)the acquiring corporation after the reorganization.

Question 28

Opal exchanges her 1,000 shares of voting stock with a value of $100,000 for 100 bonds each with a face value of $1,000.This qualifies as a tax-free "Type E" reorganization.

Question 29

The so-called "anti-stuffing" rules are designed to thwart shareholders from contributing assets to a loss corporation,chiefly to increase its value for the computation of the § 382 limitation.

Question 30

The continuity of interest and the continuity of business requirements prevent transactions that appear to be a sale from qualifying for tax-free treatment of a reorganization.

Question 31

Since the § 382 limitation purpose is to limit losses available to a corporation acquiring a loss corporation,the limitation applies only to NOLs,built-in losses on transferred assets,and capital losses.

Question 32

A 50 percentage point ownership shift evoking the § 382 limitations can occur with a "Type E" reorganization when the shareholders exchange their shares for bonds.

Question 33

To expedite requests for letter rulings on corporate reorganizations,the entities involved should apply for the letter ruling within 10 weeks of completing the transaction.

Question 34

The objective of the § 382 limitation is to restrict the use of tax carryover benefits to a hypothetical future income stream from the former loss corporation's assets,based on its stock value at the time of the reorganization.

Question 35

A "Type E" reorganization has tax implications for only the security or stockholders and no tax affect on the corporation involved.

Question 36

Besides the statutory requirements,reorganizations must meet several judicially created doctrines.

Question 37

Since a "Type F" reorganization includes a change from a taxable corporation to flow-through entity,the original corporation stock loses its § 1244 status and earnings and profits do not carry over.

Question 38

In the business purpose requirement for tax-free treatment of a reorganization,it is the shareholder's business purpose that is paramount.

Question 39

With a divisive "Type D" reorganization,two corporations can be created to receive part of the assets of a distributing corporation in exchange for stock,providing that the distributing corporation receives a controlling interest in the new corporations.

Question 40

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.

Question 41

Alister Corporation would like to enter into a reorganization transaction with Tiber Corporation.Alister will exchange $300,000 of common stock,$80,000 of preferred stock,and $20,000 cash for most of Tiber's assets (worth $450,000)and long-term liabilities ($50,000).Tiber distributes the stock,cash,unwanted assets (worth $100,000),and short-term liabilities (valued at $30,000)to its shareholders.Which of the following statements is true?

A)This restructuring will qualify as a "Type A" statutory merger.
B)This restructuring will qualify as a "Type C" reorganization.
C)This restructuring will qualify as an acquisitive "Type D" reorganization.
D)This could qualify as a "Type A" statutory merger or a "Type C" reorganization.
E)This does not qualify as a reorganization under § 368.

Question 42

All of the following statements are true about gains recognized in a corporate reorganization except:

A)Taxable amounts in a reorganization are classified as a dividend or capital gain.
B)Corporate shareholders would prefer taxable amounts in a reorganization be classified as a capital gain.
C)Individuals are taxed at the same rate for dividends and capital gains.
D)Capital gains and dividend income can be totally eliminated in a corporate reorganization with careful tax planning.
E)All of the above statements are true.

Question 43

The French Corporation has assets valued at $1 million with an adjusted basis of $700,000.There are mortgages of $250,000 associated with these assets.Accent Corporation acquires all of French's assets by exchanging $800,000 of its voting stock and assumes $200,000 of French's liabilities.French distributes the Accent stock and remaining liabilities to its shareholders in exchange for their French stock and then liquidates.Which,if any,of the following statements is correct?

A)This restructuring qualifies as a "Type A" reorganization.
B)This restructuring qualifies as a "Type C" reorganization.
C)The restructuring is taxable because liabilities cannot be distributed to shareholders in a tax-free reorganization.
D)Accent recognizes a $50,000 gain on the restructuring.
E)None of the above statements is correct.

Question 44

Burnbay Corporation wants Current Corporation to become a 100% owned subsidiary.Burnbay acquires 90% of Current's stock (worth $300,000)by exchanging its common voting stock with the shareholders of Current.Since 10% of the Current shareholders are not interested in being common shareholders of Burnbay,they retain their shares.This transaction qualifies as what type of reorganization?

A)A "Type A" reorganization.
B)A "Type B" reorganization.
C)A "Type C" reorganization.
D)An acquisitive "Type D" reorganization.
E)A taxable exchange.

Question 45

Cardinal Corporation redeems all of its voting common stock.Cardinal then exchanges this redeemed stock with Wren corporation for 40% of Wren's voting common and nonvoting preferred stock.The Wren stock was distributed to the Cardinal shareholders.After the transaction,both Cardinal and Wren corporations still exist.The former Cardinal shareholders are now shareholders of Wren.This transaction qualifies as a(n):

A)"Type A" reorganization.
B)"Type B" reorganization.
C)"Type C" reorganization.
D)Acquisitive "Type D" reorganization.
E)Taxable event.

Question 46

Which of the following statements regarding "Type B" reorganizations is true?

A)"Type B" reorganizations are rather complicated because a parent-subsidiary relationship is created by the transaction. This can cause problems for shareholders.
B)The requirement that only voting stock may be used as consideration in a "Type B" reorganization by the acquiring corporation is a distinct disadvantage.
C)The acquisition of liabilities can cause problems with a "Type B" reorganization. If the liabilities are greater than 20% of the asset value, the 80% control requirement is not met.
D)Since the shareholders of the target are likely to have greater than a 50 percentage point ownership change, the § 382 limitations usually apply to "Type B" reorganizations.
E)All of the above statements are true.

Question 47

North Corporation acquires 90% of South's assets by exchanging $600,000 of its voting stock and assuming $300,000 of South's liabilities.South uses part of its remaining $100,000 in cash to satisfy its $40,000 in liabilities not assumed by North.South then liquidates by transferring the North stock and the $60,000 cash to its shareholders in exchange for their South stock.

A)This qualifies as a "Type A" reorganization.
B)This qualifies as a "Type B" reorganization.
C)This qualifies as a "Type C" reorganization.
D)This is a taxable transaction.
E)None of the above is correct.

Question 48

Which of the following is false regarding a "Type A" reorganization?

A)The acquiring corporation assumes only those liabilities of the target corporation that are associated with assets.
B)The acquiring corporation does not have to acquire substantially all of the assets of the target corporation.
C)Generally, the dissenting shareholders of the target may have their shares appraised and bought outright if they so desire.
D)Money or other property transferred by the acquiring corporation to the target could be as much as 49% and not destroy the tax-free reorganization consequences for those shareholders that receive stock.
E)None of the above.

Question 49

Carlos purchased 20% of Target Corporation's stock five years ago for $50,000.In a transaction qualifying as a "Type A" reorganization,Carlos received $40,000 cash and 6% of Acquiring Corporation's stock (valued at $60,000)in exchange for his Target stock.Target had $300,000 accumulated earnings and profits prior to the reorganization.How does Carlos treat the exchange for tax purposes?

A)As a sale of stock and recognizes a $50,000 long-term capital gain.
B)As a sale of stock and recognizes a $10,000 long-term capital loss.
C)As a dividend of $40,000.
D)As a stock redemption and recognizes a $40,000 long-term capital gain.
E)Not enough information is available to determine proper treatment.

Question 50

Which of the following is not a possible outcome for a shareholder who is a party to a corporate reorganization falling under § 368?

A)If boot is received, dividend treatment to the extent of the shareholder's proportionate share of corporate E & P.
B)If boot is received, amounts in excess of a shareholder's proportionate share of corporate E & P are capital gains.
C)Redemption treatment and therefore capital gain or loss if the requirements of § 302(b) are met.
D)No gain or loss is recognized when the shareholder does not receive boot in the transaction.
E)All of the above are possible outcomes.

Question 51

Mergers and acquisitions (M & A)are popular methods of increasing the economic vitality of businesses.Which of the following statements is true regarding the current trends in M & A?

A)Mergers and acquisitions hit an all time high in 2000 and the U.S. is not likely to see that level of activity for years to come.
B)The current trend is toward divestures of unwanted divisions through split-offs.
C)Mergers and acquisitions have been on the increase in recent years due to a downturn in the economy and financial statement misstatements.
D)Congress has been trying to stimulate mergers and acquisitions in recent years through simplifications in the Code that make it easier to qualify for tax-free treatment.
E)All of the above are true.

Question 52

Gravity Corporation creates Earth Corporation.It transfers most of its assets (net value $900,000)to Earth.At approximately the same time,Magnet Corporation also transfers all of its assets (net value $90,000)to Earth.Gravity liquidates by transferring its remaining assets,$100,000 cash and 1,000 shares of Earth,to its sole shareholder,Zia,in exchange for all of her Gravity stock.Zia's basis in her Gravity stock was $300,000.Magnet liquidates by transferring 100 shares of Earth to its sole shareholder,Amos,in exchange for all of his Magnet stock.Amos's basis in his Magnet stock was $150,000.How will this transaction be treated for tax purposes?

A)This is a taxable transaction. Zia recognizes $700,000 gain and Amos recognizes $60,000 loss.
B)This qualifies as a "Type D" reorganization. Neither Zia nor Amos recognizes a gain or loss.
C)This qualifies as a "Type C" reorganization. Zia recognizes $100,000 gain, Gravity also recognizes $100,000 gain, but Amos will not recognize his loss.
D)This qualifies as a "Type A" reorganization. Zia recognizes $100,000 gain, but Amos will not recognize any loss.
E)None of the above.

Question 53

Yellow Corporation and Green Corporation enter into a "Type A" reorganization.Raul currently holds a 15-year $100,000 Green bond paying 6% interest.In exchange for his Green bond,Raul receives a 5-year $125,000 Yellow bond paying 5% interest.Raul is happy with the Yellow bond because,even though it pays a lower interest rate,the yield provides slightly more interest than the Green bond,and both bonds mature on the same date.How does Raul treat this transaction on his tax return?

A)Raul recognizes gain of $25,000 on the exchange ($125,000 - $100,000).
B)Raul recognizes a $5,000 gain ($100,000 * 6% = $120,000 * 5%; $125,000 - $120,000 = $5,000).
C)Raul recognizes $1,250 gain ($5,000 * 5% * 5 years remaining on bond).
D)Raul has no gain because he exchanges a security for a security.
E)None of the above.

Question 54

Target Corporation is merging into Acquiring Corporation under state law requirements.Target has 3,000 shares outstanding,with a value of $100 per share.Joey,one of Target's shareholders,exchanges his 500 Target shares,for which he paid $80 per share,for 1,000 shares of Crow stock,valued at $30 per share,and $5,000 cash.Acquiring owns 40% of Crow stock.How does Joey treat this transaction for tax purposes?

A)Joey recognizes a $5,000 gain.
B)Joey has a recognized $60,000 gain.
C)Joey recognizes no gain or loss.
D)Joey has a recognized loss of $5,000.
E)None of the above.

Question 55

Wall Corporation has assets with a $150,000 basis,$350,000 value,and $50,000 of liabilities.Wall transfers $330,000 of its assets and all of its liabilities to Floor Corporation in exchange for $280,000 of Floor common stock.Wall distributes the Floor stock and its remaining $20,000 cash to Carmen,Wall's sole shareholder,in exchange for all of her Wall stock.Carmen purchased the Wall stock 5 years ago for $290,000.Finally,Wall liquidates.Which,if any,of the following statements is correct?

A)Wall recognizes a $50,000 gain on the reorganization.
B)Carmen recognizes a $20,000 gain and Wall recognizes a $50,000 gain on the reorganization.
C)Wall and Carmen both recognize a $20,00 gain on the transaction.
D)Carmen recognizes a $10,000 gain on the reorganization.
E)None of the above.

Question 56

Perry owns 80% of Weed Corporation and Aimee owns the other 20%.In exchange for all of the Weed stock,Perry receives 3,400 shares of Grass Corporation common stock (value $70,000),and Aimee receives 50 shares of Grass preferred (value $20,000).Perry also receives $10,000 in bonds.The exchange qualifies as what type of transaction?

A)"Type A" reorganization.
B)"Type B" reorganization.
C)"Type C" reorganization.
D)Acquisitive "Type D" reorganization.
E)A taxable exchange.

Question 57

Jupiter Corporation acquires all of Titian Corporation's stock in exchange for its voting stock.Iris received 1,000 shares of Jupiter valued at $50,000 for her 8,000 shares of Titian that cost Iris $100,000 five years ago.In addition to the Jupiter stock,she receives a $30,000 bond.How does Iris treat this transaction for tax purposes?

A)Iris recognizes a loss of $50,000. Her Jupiter stock basis is $50,000.
B)Iris recognizes a loss of $20,000. Her Jupiter stock basis is $80,000.
C)Iris recognizes a $20,000 loss and a $25,000 gain. Her Jupiter stock basis is $105,000.
D)Iris realizes a $20,000 loss that is not recognized. Her Jupiter stock basis is $120,000.
E)None of the above.

Question 58

Silver Corporation redeems all of Alluvia's 3,000 shares and distributes to her 1,000 shares of Gold Corporation stock plus $20,000 cash.Alluvia's basis in her 30% interest in Silver is $80,000 and the stock's market value is $120,000.At the time Silver is acquired by Gold,the accumulated earnings and profits of Silver are $100,000 and Gold's are $50,000.How does Alluvia treat this transaction for tax purposes?

A)No gain is recognized by Alluvia in this reorganization.
B)Alluvia reports a $20,000 recognized dividend.
C)Alluvia reports a $20,000 recognized capital gain.
D)Alluvia reports a $15,000 recognized dividend and a $5,000 capital gain.
E)None of the above.

Question 59

Rosa Corporation transfers $1 million of its voting stock and $200,000 cash to Clara Corporation in exchange for 90% of its assets.Clara uses all of its remaining assets and the cash received from Rosa to pay its liabilities.Clara then distributes the Rosa stock to its shareholders in exchange for all of their shares of Clara.Lastly,Clara terminates.This restructuring qualifies as a:

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

Question 60

Which of the following is not a reorganization designated under § 368(a)(1)?

A)Transfers due to a bankruptcy or receivership proceeding.
B)Recapitalization.
C)Transferring assets to a controlled corporation in exchange for stock that is given to the distributing corporation's shareholders.
D)Acquisition of target stock by exchanging voting stock of the acquiring corporation.
E)All of the above are reorganizations listed in § 368(a)(1).

Question 61

Gravy Corporation and Dirt Corporation enter into merger negotiations.Gravy is very interested in a merger with Dirt because it has a large NOL that Gravy could use to offset its income from manufacturing processed food.Dirt has been sustaining losses in its contaminated dirt removal business.Gravy acquires all of Dirt's assets and liabilities in exchange for 20% of Gravy's stock.Dirt immediately liquidates by transferring Gravy stock to its shareholders in exchange for all of their Dirt stock.How will this transaction be treated for tax purposes?

A)This transaction is a "Type A" reorganization.
B)This transaction is a "Type C" reorganization.
C)This transaction is an acquisitive "Type D" reorganization.
D)This transaction is a taxable.
E)None of the above.

Question 62

Lemon Corporation is having financial difficulties.Its liabilities now amount to $600,000 and its assets are only valued at $200,000.Further,Lemon has capital loss carryovers of $80,000 and NOL carryovers amounting to $350,000 at the time of its restructuring.Through a bankruptcy proceeding (Type G reorganization),Citrus Corporation becomes the successor corporation to Lemon.Which of the following statements is true with regard to the described transaction?

A)Citrus can utilize $30,000 of Lemon's NOL and none of Lemon's capital loss carryforward.
B)Citrus recognizes $400,000 of cancellation of debt income. Citrus can utilize all of Lemon's capital loss and NOL carryforwards.
C)Citrus can utilize $30,000 of Lemon's capital losses and none of Lemon's NOL.
D)Citrus must reduce its basis in Lemon's assets to zero and reduce the NOL carryforward to $150,000.
E)None of the above statements are true.

Question 63

For the last 10 years,Contra Corporation has owned two plants for manufacturing picture frames.One plants is located in an urban area while the other is in the country.There have been some protests at the urban plant regarding air pollution.Therefore,Contra decides to create a new corporation,called Alpha,and place the assets of the urban plant into Alpha in exchange for all of Alpha's stock.Contra distributes this stock proportionately to its shareholders in exchange for 40% of their Contra stock.

A)This transaction qualifies as an acquisitive "Type D" reorganization.
B)This transaction qualifies as a spin-off "Type D" reorganization.
C)This transaction qualifies as a split-up "Type D" reorganization.
D)This transaction does not qualify as a reorganization, because Contra does not liquidate after the transaction.
E)None of the above statements is correct.

Question 64

Which reorganization is most likely to run afoul of the continuity of interest test?

A)A "Type A" reorganization.
B)A "Type B" reorganization.
C)An acquisitive "Type C" reorganization.
D)An acquisitive "Type D" reorganization.
E)All are equally as likely.

Question 65

Music Corporation has three shareholders,Leonard,Henry,and Susan.Leonard and Henry purchased their stock two years ago from Susan (who started Music ten years ago).Music's income comes from the manufacturing of record players,cassette players,CD players,and substantial investments.
Leonard and Henry consider the manufacturing of record and cassette payers to be marginal businesses and want to stop their production.Susan likes providing these players even if the market is marginal.Music has been producing them since it began and only started producing CD players six years ago.Susan thinks that CD players are just a passing trend.
To resolve these issues,it is suggested that two new corporations be created: CD and Vintage.CD would receive all of the assets of the CD division and Vintage would receive all of the assets of the record and cassette player divisions.All of the stock of these corporations would be received by Music and distributed to the shareholders.Music would retain the investments.Susan would turn in some of her Music stock in return for Vintage stock,and Leonard and Henry would receive CD stock for some of their Music stock.All three shareholders would retain some Music stock as it still holds the investments.

A)The transaction qualifies as a spin-off "Type D" reorganization.
B)The transaction qualifies as a split-off "Type D" reorganization.
C)The transaction qualifies as a split-up "Type D" reorganization.
D)The transaction is taxable.
E)None of the above.

Question 66

Present value tables needed for this question. Hard Corporation has net assets valued at $900,000 and an NOL of $450,000.On January 3 of the current year,Hard is acquired by Soft Corporation in a restructuring qualifying as a tax-free reorganization that causes an ownership shift of 80 percentage points for the Hard shareholders.Soft uses a calendar year for tax purposes.Assuming that the long-term tax-exempt rate is 5%,what is the maximum amount Soft should be willing to pay Hard for its NOL,if Soft uses a 10% discount factor for this decision?

A)$450,000.
B)$276,525.
C)$138,263.
D)$191,565.
E)None of the above.

Question 67

In which type of reorganization could bonds and other liabilities be exchanged for stock and not cause a recognized gain or loss?

A)A "Type C" reorganization.
B)An acquisitive "Type D" reorganization.
C)A "Type E" reorganization.
D)A "Type G" reorganization.
E)None of the above.

Question 68

Tiger Corporation is interested in acquiring most of Buffalo Corporation's assets.Buffalo's assets are currently valued at $700,000.However,there is one division of Buffalo in which Tiger is not interested.Since Buffalo wants the Tiger takeover to occur,it sells the line for its net fair market value of $250,000 ($350,000 assets less $100,000 in liabilities).Buffalo then transfers its remaining assets to Tiger for $450,000 in common voting stock.

A)This transaction qualifies as a "Type A" merger reorganization.
B)This transaction qualifies as a "Type C" reorganization.
C)This transaction qualifies as an acquisitive "Type D" merger reorganization.
D)This transaction qualifies as a spin-off followed by a "Type C" reorganization.
E)None of the above statements are true.

Question 69

Tree Corporation and Branch Corporation would like to merge.Tree has a net value of $700,000 and Branch's net value is $300,000.They were considering creating a new corporation called TreeBranch but Branch has valuable patents that cannot be transferred.Therefore,Tree will transfer all of its assets to Branch in exchange for 70% of its stock.Tree will then liquidate by exchanging the Branch stock with its shareholders for their stock in Tree.Which,if any,of the following statements is correct?

A)This transaction qualifies as a reverse "Type B" reorganization.
B)This transaction qualifies as a reverse "Type C" reorganization.
C)This transaction does not qualify as a reorganization, because Tree only receives 70% of Branch's stock. Tree needs to acquire at least 80% of the stock to qualify for tax-free treatment.
D)This transaction does not qualify as a reorganization because Tree, the larger corporation, rather than Branch, the smaller corporation, ceases to exist after the transaction.
E)None of the above statements is correct.

Question 70

Deer Corporation was acquired last year by Lobo Corporation in a transaction causing an ownership change.At the time of the acquisition,the fair market value of Deer was $1.5 million and the Federal long-term tax-exempt rate was 5%.In the current year,Lobo has $600,000 of taxable income and excess credits carryovers from Deer amounting to $40,000.What is Lobo's Federal income tax for the year if Lobo is in the 34% tax bracket?

A)$178,500.
B)$96,000.
C)$55,000.
D)$27,540.
E)None of the above.

Question 71

Crater Corporation is owned 70% by Lin Yuan and 30% by Yu Chi.Due to news articles damaging Crater's reputation,Lin and Yu decide to liquidate Crater,which has been in existence for eight years.They create Lunar and Solar corporations to receive all of the manufacturing assets of Crater.Lunar receives the night light manufacturing assets and Solar receives the heat lamp business.All of the Lunar stock and 40% of the Solar stock is given to Lin in exchange for her Crater stock.Yu receives the remaining 60% of Solar in exchange for his Crater stock.Crater then liquidates.Assuming all other requirements are met,these transactions qualify as:

A)A taxable transaction.
B)A "Type A" consolidation.
C)A "Type D" split-off reorganization.
D)A "Type D" split-up reorganization.
E)None of the above.

Question 72

Which of the following statements regarding ownership changes and the § 382 limitations is true?

A)The order in which tax attributes are limited by § 382 is the same as the order in which tax attributes are disallowed due to cancellation of debt income relief for a "Type G" reorganization.
B)An equity shift cannot occur with a "Type B," "Type E," or "Type F" reorganization.
C)The Federal long-term bond rate is used to determine the amount of tax attributes the acquiring corporation may use when there has been an ownership change in the target.
D)An owner shift can occur through a redemption of stock and a stock issuance.
E)All of the above are true.

Question 73

Western Corporation is two years old.In June of the current year,Western makes an S election effective for the current year and becomes Western S Corporation.Western's sole shareholder,Wayne,exchanges all of his Western stock for all the stock of Western S Corporation plus $50,000 cash.

A)This transaction qualifies as a "Type F" reorganization for Western.
B)This transaction qualifies as a "Type D" reorganization for Western.
C)This transaction qualifies as a "Type B" reorganization for Western.
D)This transaction is taxable for Western.
E)None of the above.

Question 74

Neil Corporation is a car dealership that that has been in existence for 10 years.It has also been in the car leasing business for 6 years.Both businesses produce substantial amounts of cash,consequently Neil has been investing this cash into mutual funds for the past 10 years.Neil is interested in separating its businesses.It will create new corporation(s)to receive assets in exchange for stock.It will then distribute that stock to its shareholders.Which of the following is correct regarding this transaction?

A)The Neil shareholders must relinquish some of their stock in exchange for the new corporation stock. If they do not, the transaction receives dividend treatment.
B)This qualifies as a split-off "Type D" reorganization if the mutual fund investments are transferred to the new corporation.
C)This qualifies as a spin-off "Type D" reorganization if the car leasing business is transferred to the new corporation.
D)This qualifies as a split-up "Type D" reorganization if the car leasing business is transferred to the new corporation and another corporation is created to receive the mutual fund investments.
E)All of the above statements are correct.

Question 75

Heart Corporation has net assets valued at $900,000 and an NOL of $300,000.On June 30 of the current year,Heart is acquired by Brain Corporation in a restructuring qualifying as a tax-free reorganization that causes an ownership shift of 30 percentage points for Heart's shareholders.Brain uses a calendar year for tax purposes.Assuming that the long-term tax-exempt rate is 8%,what is the maximum amount of Heart's NOL available to Brain in the current year?

A)$12,000.
B)$240,000.
C)$36,000.
D)$72,000.
E)None of the above.

Question 76

Hydrogen Corporation has assets valued at $500,000 (adjusted basis of $100,000),liabilities of $200,000,and accumulated earnings and profits of $50,000.Oxygen Corporation has entered into negotiations with Hydrogen to acquire it in a corporate reorganization transaction.Which of the following statements is true with regard to the proposed reorganization?

A)If the transaction qualifies as a "Type A" reorganization, Hydrogen recognizes gain of $100,000 because its liabilities are in excess of its adjusted basis.
B)The transaction qualifies as a "Type B" reorganization, and Hydrogen recognizes gain if the cash received from Oxygen at least equals the liabilities.
C)The transaction cannot qualify as a "Type C" reorganization because Hydrogen's liabilities are greater than 20% of its asset value. Liabilities are treated as boot in a "Type C" reorganization.
D)If the transaction qualifies as an acquisitive "Type D" reorganization, Oxygen will increases its liabilities by $200,000 and Hydrogen recognizes $50,000 due to its earnings and profits.
E)None of the above are true.

Question 77

Brighton Corporation requires all of its shareholders to relinquish a proportionate number of their common shares,and in return they receive preferred stock.For each 10 shares of common stock,the shareholders receive 1 share of preferred.After the transaction is complete,60% of the shareholders sell their preferred stock to the remaining 40% preferred owners.Which of the following statements is correct?

A)The exchange of common for preferred is not be taxable.
B)The shareholders will recognize gain or loss when they sell their preferred stock to the other shareholders.
C)This qualifies as a "Type E" reorganization.
D)All of the above are correct.
E)None of the above is correct.

Question 78

Match the following items with the statements below. Terms may be used more than once.
a.Capital gain
b.Continuity of business enterprise
c.Continuity of interest
d.Dividend
e.Equity change
f.Liability assumption
g.Ordinary gain
h.Ownership change
i.Not recognized
j.Sound business purpose
k.Step transaction
Limits nonrecognition treatment to reorganizations that are motivated by valid corporate needs.

Question 79

Mortisha exchanges her $300,000 in preferred stock and a $100,000 bond for 40% of the common stock (worth $400,000)in Adams Corporation.The bond paid 6% annual interest and the preferred stock had been paying a 5% dividend which was cumulative.The common stock is not likely to pay dividends in the next three years because Adams is having some financial difficulties.

A)This transaction qualifies as a "Type B" reorganization.
B)This transaction qualifies as a "Type E" reorganization.
C)This transaction qualifies as a "Type F" reorganization.
D)This transaction qualifies as a "Type G" reorganization.
E)None of the above.

Question 80

Bark Corporation merged into Dog Corporation two years ago.At the time of the merger,Bark had an earnings and profits (E & P)deficit of $250,000 and Dog had a positive E & P of $200,000.The prior two years have resulted in a positive E & P of $100,000.Despite having a negative E & P of $30,000 for the year,Dog makes a distribution to its shareholders of $270,000.How is the distribution taxed to the shareholders?

A)$270,000 treated as a return of capital.
B)$20,000 taxed as a dividend and $250,000 treated as a return of capital.
C)$200,000 taxed as a dividend and $70,000 treated as a return of capital.
D)$270,000 taxed as a dividend.
E)None of the above.