Question 1

Tax considerationsshould always be the primary reason for structuring an acquisition.

Accepted Answer

While tax considerations can certainly play a significant role in acquisition structuring, they should not always be the primary reason. Other factors such as strategic fit, potential synergies, market opportunities, and financial performance should also be taken into account. While tax considerations can be an important factor in structuring an acquisition, there are also many other factors to consider such as strategic fit, cultural compatibility, and financial performance. It is important to weigh all of these factors when deciding on the best acquisition structure.

Question 2

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

Accepted Answer

In a §351 exchange, the receipt of nonvoting stock does not disqualify a taxpayer from deferring recognition of gain or loss, as the tax code primarily requires the transfer of property to a corporation in exchange for its stock and immediately afterwards being in control of the corporation, without specifying that the stock must be voting.

Question 3

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 4

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 5

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 deferred gain under §351, the basis of the stock received is the same as the basis of the property transferred, decreased by any money received. In this case, Maria deferred $100 of gain and received stock with a fair market value of $500. Therefore, her basis in the stock will be $400 ($500 - $100). In a §351 transaction, the tax basis of the stock received is equal to the tax basis of the property transferred plus any gain recognized. Since Maria deferred the $100 gain, her tax basis in the stock will be equal to the tax basis of the property transferred, which is $400. Therefore, Maria's tax basis in the stock will be $400 ($500 fair market value of stock received minus $100 gain deferred).

Question 6

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 7

A §338 transaction is a stock acquisition elected to be treated as an asset acquisition.

Accepted Answer

In a §338 transaction, the stock acquisition is treated as an asset acquisition for tax purposes, allowing the buyer to step up the tax basis in the target company's assets. In a §338 transaction, a stock acquisition is treated as an asset acquisition for tax purposes. The election under §338 allows the buyer of the stock to step up the basis of the assets underlying the purchased stock to their fair market value, resulting in potential tax savings.

Question 8

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

Question 9

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 receive at least 50% of the total equity in the newly reorganized entity in order for the transaction to qualify for certain tax benefits. This focuses on the aggregate equity received by the shareholders. The continuity of interest doctrine examines whether the shareholders of the target corporation maintain a significant equity interest in the reorganized entity as a way to maintain tax-deferred treatment in a reorganization transaction. It focuses on the aggregate equity received by the shareholders of the target corporation.

Question 10

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 is the correct definition of the control test under §351. This statement accurately reflects the control test requirements under §351 of the Internal Revenue Code.

Question 11

Han transferred land to his solely owned corporation in a §351 transaction. Han had held the land for two years prior to the transfer and recognized no gain on the transfer. The corporation will tack Han's holding period for the land.

Accepted Answer

When property is transferred to a corporation in a §351 transaction, the transferor's holding period will be tacked onto the corporation's holding period for that property. Therefore, the corporation will have a two-year holding period for the land transferred by Han. According to §1223(2), the corporation will tack Han's holding period for the land, allowing the corporation to use Han's two-year holding period to determine whether the land qualifies for long-term capital gain treatment upon disposition. Additionally, since Han recognized no gain on the transfer in a §351 transaction, there would be no immediate tax consequences for Han or the corporation.

Question 12

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 13

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 14

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

Accepted Answer

According to the Internal Revenue Code §351, property includes not only tangible property such as real estate and equipment but also intangible property such as patents, copyrights, and even money. According to the Internal Revenue Code §351, property includes not only tangible or intangible assets, but also money. Therefore, the transfer of money can qualify as property in a §351 transaction.

Question 15

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...

Question 16

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

Accepted Answer

Generally, a transaction must occur before any gain or loss can be realized for tax purposes. Generally, in order to realize a gain or loss for tax purposes, the taxpayer must engage in a transaction such as selling an asset or receiving payment for services rendered.

Question 17

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 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

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 20

A reverse triangular reorganization requires that the target shareholders receive voting stock of the acquiring corporation.

Accepted Answer

In a reverse triangular reorganization, the target company is merged with a subsidiary of the acquiring company. As a result, the target shareholders receive voting stock of the acquiring corporation. In a reverse triangular reorganization, the acquiring corporation creates a subsidiary that merges with the target company, with the subsidiary surviving the merger. The target shareholders then receive voting stock of the acquiring corporation, which is a key feature of this type of transaction.

Quiz 8: Corporate Formation, Reorganization, and Liquidation