Question 1

The shareholders in the target corporation always receive a tax basis in the stock received from the acquirer equal to the stock's fair market value.

Accepted Answer

The tax basis that shareholders in the target corporation receive in the stock from the acquirer is generally not the stock's fair market value but rather carries over from their original basis in the target corporation's stock, unless the transaction is structured to qualify as a taxable transaction where different rules might apply.

Question 2

The definition of property as it relates to a §351 transaction includes money.

Accepted Answer

According to the Internal Revenue Code §351, property includes both tangible and intangible assets. Money is considered an intangible asset and therefore falls under the definition of property in a §351 transaction.

Question 3

Han transferred land to his corporation in a §351 transaction.Han had held the land for two years prior to the transfer.The corporation will tack Han's holding period for the land.

Accepted Answer

According to section 1223(2) of the Internal Revenue Code, the holding period of property acquired by a corporation through a §351 transaction includes the holding period of the transferor. Therefore, in this case, the corporation will tack Han's holding period for the land.

Question 4

Generally,before gain or loss is realized for tax purposes,the taxpayer must engage in a transaction.

Accepted Answer

Generally, a transaction needs to be engaged in before a gain or loss can be realized for tax purposes.

Question 5

A taxpayer who receives nonvoting preferred stock is not eligible for deferral in a §351 exchange.

Accepted Answer

The answer of A taxpayer who receives nonvoting preferred stock...

Question 6

Gain or loss is always recognized when realized for tax purposes.

Accepted Answer

The answer of Gain or loss is always recognized when...

Question 7

To meet the control test under §351,taxpayers transferring property to a corporation must in aggregate own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock after the transfer.

Accepted Answer

This statement correctly defines the control test under §351. Taxpayers must own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock to meet the control test.

Question 8

The requirements for tax deferral in a forward triangular merger and a reverse triangular merger are the same.

Accepted Answer

In a forward triangular merger, the acquiring corporation's parent must use its voting stock to acquire control of the target corporation, while in a reverse triangular merger, the subsidiary of the acquiring corporation merges into the target, with the target surviving, and similar stock considerations apply. The specific requirements for tax deferral, including the type and amount of consideration that can be used, differ between the two types of mergers.

Question 9

Maria defers $100 of gain realized in a §351 transaction.The stock she receives in the exchange has a fair market value of $500.Maria's tax basis in the stock will be $400.

Accepted Answer

When a taxpayer defers gain under §351 by transferring property to a corporation in exchange for stock, the tax basis in the stock received is equal to the tax basis in the property transferred, minus any liabilities assumed by the corporation, plus any gain recognized (if any) under the transaction. In this case, Maria deferred $100 of gain, so her tax basis in the stock is $400 ($500 - $100).

Question 10

A §338 transaction is a stock acquisition treated as an asset acquisition based on an election made by the acquirer.

Accepted Answer

A §338 transaction is a commonly used tax planning tool in which a stock acquisition is treated as an asset acquisition for tax purposes through an election made by the acquirer. This allows the acquirer to receive tax benefits such as stepped-up tax basis on acquired assets and deductible amortization on goodwill.

Question 11

Tax considerations are always the primary reason for structuring an acquisition.

Accepted Answer

While tax considerations may be an important factor in structuring an acquisition, other factors such as strategic fit, operational synergies, and financial performance are also critical.

Question 12

In a tax-deferred transaction,the calculation of a taxpayer's tax basis in property received always begins with its cost to the taxpayer.

Accepted Answer

In a tax-deferred transaction, the taxpayer's tax basis in the property received is often determined by the carryover basis from the property exchanged, not merely its cost. This means the basis in the new property is based on the basis of the old property, adjusted for any additional considerations paid or received, rather than starting anew with the cost of the acquired property.

Question 13

A taxpayer always will have a tax basis in boot received in a §351 transaction equal to its fair market value.

Accepted Answer

The answer of A taxpayer always will have a tax...

Question 14

A stock-for-stock Type B reorganization will be tax-deferred to a target corporation shareholder as long as at least 80 percent of the consideration received is in the form of stock of the acquirer.

Accepted Answer

The answer of A stock-for-stock Type B reorganization will be...

Question 15

Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received by the shareholders of the target corporation in the transaction.

Accepted Answer

Continuity of interest refers to the requirement that the shareholders of the target corporation must maintain an aggregate equity interest in the acquiring corporation that is at least equal to their equity interest in the target corporation immediately prior to the transaction. This ensures that there is no taxable recognition of gain or loss by the shareholders.

Question 16

Mandel transferred property to his new corporation in a §351 transaction.Among the several properties transferred by Mandel was land with a fair market value of $200,000 and a tax basis of $250,000.In all cases,the corporation will always take a tax basis in the land of $200,000 to prevent the "built-in loss" from being transferred from Mandel to the corporation.

Accepted Answer

In a §351 transaction, the corporation takes a carryover basis in the property transferred to it, which means the corporation's basis in the land would be Mandel's basis of $250,000, not the fair market value of $200,000. This preserves the "built-in loss" in the hands of the corporation.

Question 17

Control as it relates to a §351 transaction is strictly defined to be 80 percent or more of the voting power of the stock of the corporation to which property is transferred.

Accepted Answer

The answer of Control as it relates to a §351...

Question 18

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a §351 transaction.In all cases,the assumed liability will be treated as boot received by Jane.

Accepted Answer

In a §351 transaction, the assumption of liability by the corporation is generally not treated as boot received by the transferor unless the liability exceeds the basis of the assets transferred. The treatment depends on the purpose of the liability assumption and the overall context of the transaction.

Question 19

Type A reorganizations involve the transfer of assets of the target corporation via a merger or consolidation.

Accepted Answer

Type A reorganizations involve the transfer of assets of the target corporation via a merger or consolidation.

Question 20

Gain and loss realized in a §351 transaction will be recognized if the taxpayer receives boot in the exchange.

Accepted Answer

The answer of Gain and loss realized in a §351...

Quiz 19: Corporate Formation,reorganization,and Liquidation

The shareholders in the target corporation always receive a tax basis in the stock received from the acquirer equal to the stock's fair market value.

The definition of property as it relates to a §351 transaction includes money.

Han transferred land to his corporation in a §351 transaction.Han had held the land for two years prior to the transfer.The corporation will tack Han's holding period for the land.

Generally,before gain or loss is realized for tax purposes,the taxpayer must engage in a transaction.

A taxpayer who receives nonvoting preferred stock is not eligible for deferral in a §351 exchange.

Gain or loss is always recognized when realized for tax purposes.

To meet the control test under §351,taxpayers transferring property to a corporation must in aggregate own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock after the transfer.

The requirements for tax deferral in a forward triangular merger and a reverse triangular merger are the same.

Maria defers $100 of gain realized in a §351 transaction.The stock she receives in the exchange has a fair market value of $500.Maria's tax basis in the stock will be $400.

A §338 transaction is a stock acquisition treated as an asset acquisition based on an election made by the acquirer.

Tax considerations are always the primary reason for structuring an acquisition.

In a tax-deferred transaction,the calculation of a taxpayer's tax basis in property received always begins with its cost to the taxpayer.

A taxpayer always will have a tax basis in boot received in a §351 transaction equal to its fair market value.

A stock-for-stock Type B reorganization will be tax-deferred to a target corporation shareholder as long as at least 80 percent of the consideration received is in the form of stock of the acquirer.

Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received by the shareholders of the target corporation in the transaction.

Control as it relates to a §351 transaction is strictly defined to be 80 percent or more of the voting power of the stock of the corporation to which property is transferred.

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a §351 transaction.In all cases,the assumed liability will be treated as boot received by Jane.

Type A reorganizations involve the transfer of assets of the target corporation via a merger or consolidation.

Gain and loss realized in a §351 transaction will be recognized if the taxpayer receives boot in the exchange.