Question 1

Last year, Loss Corporation transferred all of its assets (value of $8.2 million; basis of $2.7 million) and liabilities ($3.7 million) to Gain Corporation in exchange for 40% of Gain's voting stock. Loss then liquidated. At the time of the reorganization, Loss had NOLs and excess credits that may be carried forward. For the current year, Gain has taxable income of $770,000 before considering the $150,000 NOL and $30,000 in excess credits carried to this year. If the Federal long-term tax-exempt rate was 4% at the time of the reorganization, what is the amount of NOL and credit carryovers Gain Corporation may utilize in the current year? How much credit carries over to next year?

Accepted Answer

The answer of Last year, Loss Corporation transferred all of...

Question 2

The ____________________ doctrine treats several transactions as if they were one transaction when they are all integrated. The ____________________ doctrine ensures that the restructuring has a purpose beyond tax avoidance or evasion.

Accepted Answer

The answer of The ____________________ doctrine treats several transactions as...

Question 3

Acquiring Corporation transfers $500,000 stock and land with a value of $400,000 (basis of $250,000) to Target for most of its assets. The assets not acquired in the "Type A" reorganization are distributed to Target's shareholder, Tia. They are valued at $100,000 (basis of $120,000). Acquiring stock and the land also are distributed to Tia in exchange for her stock in Target. Tia's basis in her stock is $650,000. What is the gain or loss recognized by Acquiring, Target, and Tia on this restructuring? What is Tia's basis in the Acquiring stock?

Accepted Answer

The answer of Acquiring Corporation transfers $500,000 stock and land...

Question 4

Present Value Tables needed for this question. Tony is the sole shareholder of Create Corporation. Tony is a chemical engineer and has been working hard to create a unique product but has been unsuccessful. Thus, Create has accumulated an NOL of $240,000. This year she finally finds the right combination for a new cleaning product.
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Predicting that Create will be very profitable next year, Create borrows $250,000 to pay Tony the salary she rightly deserves. Next year, Create does become profitable, earning $100,000 before application of carryovers. Mega Corporation, a huge ($50 million value, 35% tax bracket) competitor, offers to purchase the patent from Tony for $750,000.
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Knowing that the Create's NOL should be useful to Mega, Tony suggests a restructuring where she receives $500,000 in Mega stock, Mega assumes all of Create's liabilities ($250,000), plus $75,000 cash for the NOL. Mega counter offers with cash for the NOL (to be determined), and $750,000 of stock. It will not assume any liabilities. How much would be the maximum cash offered by Mega for the NOL, assuming that Mega uses an 11% discount factor and the Federal long-term tax-exempt rate is 4%? If Tony accepts Mega's offer, what type of reorganization, if any, is this restructuring?

Accepted Answer

The answer of Present Value Tables needed for this question....

Question 5

Dipper Corporation is acquiring Bulbul Corporation by exchanging 220,000 shares of Dipper stock and $80,000 cash for all of Bulbul's assets (valued at $500,000), liabilities ($200,000), and accumulated earnings and profits ($120,000). Betty purchased 40% of Bulbul five years ago for $60,000, and Keith purchased the remaining 60% for $90,000. What is the amount of the gain or loss that Betty and Keith recognize (if any), assuming that the exchange qualifies as a § 368 reorganization? What is the basis in their new Dipper stock?

Accepted Answer

The answer of Dipper Corporation is acquiring Bulbul Corporation by...

Question 6

Changing from an S corporation to a C corporation is a ____________________ reorganization.

Accepted Answer

The answer of Changing from an S corporation to a...

Question 7

Present Value Tables needed for this question. Sugar Corporation would like to acquire Salt Corporation on January 1 of the current year in a tax-free reorganization. Salt is particularly appealing to Sugar because Salt has a $250,000 capital loss that can carry over for five years. Sugar expects large capital gains for the next several years in addition to its expected $2.5 million net income. At the time of the restructuring, Salt has assets valued at $2 million (basis of $1.4 million). Sugar is proposing exchanging 45% of its stock for all of Salt's assets. The Federal long-term tax-exempt rate is 2% and Sugar's discount rate for investment decisions both currently 7%. What is the maximum present value of the capital loss to Sugar?

Accepted Answer

The answer of Present Value Tables needed for this question....

Question 8

Loss Corporation carries over an NOL, business credits, built-in ordinary losses, and capital losses. The § 382 limitation is applied to these carryover attributes in the following order: ____________________, ____________________, ____________________, ____________________.

Accepted Answer

The answer of Loss Corporation carries over an NOL, business...

Question 9

The ____________________ provides a restriction on the amount of tax attributes that can be carried over from the target to the acquiring corporation after an ownership change occurs.

Accepted Answer

The answer of The ____________________ provides a restriction on the...

Question 10

Winner Corporation, in the 35% tax bracket, acquires the bankrupt Loser Corporation in a "Type G" reorganization. The assets of Loser are valued at $250,000 (basis of $300,000), and its liabilities are $400,000. Loser holds business credits of $35,000, capital losses of $75,000, and an NOL of $175,000 that will be carried over to Winner. Loser uses $100,000 of its liquid assets to pay off its general creditors. Assuming that no special elections are made, compute Winner's basis in Loser's assets and the amount of tax benefit carryovers available to Winner.

Accepted Answer

The answer of Winner Corporation, in the 35% tax bracket,...

Question 11

Liabilities are problematic only in the ____________________ reorganization when the ____________________ corporation transfers other property (boot) as well as stock to the target.

Accepted Answer

The answer of Liabilities are problematic only in the ____________________...

Question 12

Cotinga Corporation is acquiring Petrel Corporation through a "Type C" reorganization by exchanging 20% of its voting stock and $50,000 for all of Petrel's assets (value of $800,000 and basis of $600,000) and liabilities ($100,000). Jerrika owns 48% of Petrel (basis $270,000), and Allen owns the remaining 52% (basis $380,000). They exchange their stock in Petrel for their proportionate shares of the Cotinga stock and cash. What is the value of the Cotinga stock received by Jerrika and Allen? What are the amounts of gains/losses each recognizes due to the reorganization? What is Jerrika's and Allen's basis in the Cotinga stock?

Accepted Answer

The answer of Cotinga Corporation is acquiring Petrel Corporation through...

Question 13

The yearly § 382 limitation is computed by multiplying the ____________________ of the loss corporation's stock on the change date by the ____________________. For the ____________________, the § 382 limitation must be multiplied by the fraction equal to the number of days remaining in the year divided by days in the year.

Accepted Answer

The answer of The yearly § 382 limitation is computed...

Question 14

Discuss the role of letter rulings in corporate reorganizations.

Accepted Answer

The answer of Discuss the role of letter rulings in...

Question 15

In a ____________________ reorganization, shareholders may exchange preferred stock for common or common for preferred stock.

Accepted Answer

The answer of In a ____________________ reorganization, shareholders may exchange...

Question 16

Gera owns 25,000 shares of Flow Corporation's common stock, for which she paid $250,000. The other 5,000 shares belong to Gera's brother, Earl, which he purchased for $50,000. Wanting to expand a few years ago, Flow sold $200,000 in bonds to Earl. The expansion has paid off and Flow now can afford to redeem 50% of Earl's bonds.
Rather than have the bond redeemed, Earl would prefer to receive 100 shares of preferred stock for the $100,000 in bonds. At the same time, Gera would like to also own preferred stock, so she turns in 5,000 shares of her common stock in exchange for 100 shares of preferred stock and 5,000 shares of her common for a $100,000 bond. Gera and Earl then each will hold 100 shares of preferred and $100,000 in bonds. Gera still owns 15,000 shares of common and Earl owns 5,000 shares of common.
The common stock is valued at $20 per share the day before the preferred is issued. The preferred shares are valued at $1,000 each. State the type of reorganization, if any, for which these transactions qualify. What is the amount of gain or loss that Gera and Earl recognize on these transactions?

Accepted Answer

The answer of Gera owns 25,000 shares of Flow Corporation's...

Question 17

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

Accepted Answer

The answer of The acquiring corporation in a "Type G"...

Question 18

In a ____________________ reorganization, the original corporation must receive at least 80% percent of new corporations' stock. The assets transferred to the new corporations must have been owned and conducted as a trade or business for at least ____________________ years.

Accepted Answer

The answer of In a ____________________ reorganization, the original corporation...

Question 19

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.

Accepted Answer

The answer of The ____________________ doctrine ensures that the acquiring...

Question 20

Federal bankruptcy legislation created the ____________________ reorganization. To qualify for this type of reorganization, the corporation must be ____________________ before the reorganization.

Accepted Answer

The answer of Federal bankruptcy legislation created the ____________________ reorganization....

Quiz 7: Corporations Reorganizations

The doctrine treats several transactions as if they were one transaction when they are all integrated. The doctrine ensures that the restructuring has a purpose beyond tax avoidance or evasion.

Changing from an S corporation to a C corporation is a ____________________ reorganization.

Loss Corporation carries over an NOL, business credits, built-in ordinary losses, and capital losses. The § 382 limitation is applied to these carryover attributes in the following order: , , , .

The ____________________ provides a restriction on the amount of tax attributes that can be carried over from the target to the acquiring corporation after an ownership change occurs.

Liabilities are problematic only in the reorganization when the corporation transfers other property (boot) as well as stock to the target.

The yearly § 382 limitation is computed by multiplying the of the loss corporation's stock on the change date by the . For the , the § 382 limitation must be multiplied by the fraction equal to the number of days remaining in the year divided by days in the year.

Discuss the role of letter rulings in corporate reorganizations.

In a ____________________ reorganization, shareholders may exchange preferred stock for common or common for preferred stock.

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

In a reorganization, the original corporation must receive at least 80% percent of new corporations' stock. The assets transferred to the new corporations must have been owned and conducted as a trade or business for at least years.

Federal bankruptcy legislation created the reorganization. To qualify for this type of reorganization, the corporation must be before the reorganization.