Question 1

The application of the § 382 limitation to credits requires determining the income tax reduction benefit when applying the § 382 limitation to deductions.

Accepted Answer

This statement is true. When applying the § 382 limitation to credits, it is necessary to determine the income tax reduction benefit that would have been obtained if the credits had been fully utilized. This is because the § 382 limitation is based on the amount of income tax liability that a company can offset with its pre-change losses and credits.

Question 2

When applying the § 382 limitation to deductible losses and credits, the § 382 limit first is applied to capital loss carryovers, and then to NOLs.

Accepted Answer

The answer of When applying the § 382 limitation to...

Question 3

If the acquiring corporation purchased 25% of target stock for cash ten years ago, the acquiring corporation can still meet the "Type C" reorganization requirement that 80% of the target's assets be acquired with stock.

Accepted Answer

The answer of If the acquiring corporation purchased 25% of...

Question 4

An exchange of common stock for preferred stock or bonds for preferred stock can qualify as a "Type E" reorganization.

Accepted Answer

According to the Internal Revenue Code Section 368(a)(1)(E), an exchange of common stock for preferred stock or bonds for preferred stock can qualify as a "Type E" reorganization.

Question 5

The year in which the ownership shift occurs for a corporation, the NOL carryforward is limited not only by the § 382 annual limitation, but also by the percentage of the year remaining.

Accepted Answer

This is true. When there is a shift in ownership for a corporation, the NOL carryforward is limited not only by the § 382 annual limitation, but also by the percentage of the year remaining. This means that if the ownership shift occurs in the middle of the year, the NOL carryforward limit will be based on the § 382 annual limitation as well as the percentage of the year that remains after the ownership shift.

Question 6

The continuity of interest requires that all target shareholders receive some acquiring stock.

Accepted Answer

The answer of The continuity of interest requires that all...

Question 7

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

Accepted Answer

In a "Type F" reorganization, which is a mere change in identity, form, or place of organization of one corporation, the original corporation's § 1244 status and its earnings and profits do carry over to the new entity.

Question 8

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.

Accepted Answer

In a "Type G" reorganization, which involves a transfer of assets by a corporation in bankruptcy to another corporation in exchange for its stock, followed by the distribution of the acquiring corporation's stock to the bankrupt corporation's creditors, the tax attributes (such as net operating losses) of the bankrupt corporation are reduced, but not by the percentage change in ownership. Instead, specific IRS rules determine how these attributes are reduced, often involving limitations on the amount of these attributes that the acquiring corporation can utilize annually, rather than a direct percentage reduction based on change in ownership.

Question 9

The distinguishing characteristic of a "Type D" reorganization is the acquiring corporation is the one transferring assets to the target corporation in exchange for a controlling interest in the target.

Accepted Answer

The answer of The distinguishing characteristic of a "Type D"...

Question 10

Without evidence to the contrary, the IRS views transactions occurring within one year of a reorganization as part of the restructuring.

Accepted Answer

The IRS considers transactions occurring within one year of a reorganization as part of the restructuring, unless there is evidence to the contrary.

Question 11

In a divisive "Type D" reorganization, the distributing corporation obtains control of the new target by exchanging some of its assets for at least 80% of the new target's outstanding stock.

Accepted Answer

This is the correct definition of a Type D reorganization as defined by the IRS.

Question 12

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.

Accepted Answer

The answer of One advantage of acquiring a corporation with...

Question 13

In an acquisitive "Type D" reorganization, substantially all of the target corporation's assets must be transferred to the acquiring corporation for stock amounting to at least 50% of the total acquiring stock.

Accepted Answer

In an acquisitive "Type D" reorganization, substantially all of the target corporation's assets must be transferred to the acquiring corporation for stock amounting to at least 80% of the total acquiring stock.

Question 14

For a capital restructuring to qualify as a "Type E," there must be at least a 50% change in the common stock ownership.

Accepted Answer

A "Type E" reorganization typically involves a recapitalization, which does not necessarily require a change in the common stock ownership percentage.

Question 15

Liabilities generally are not considered boot in corporate reorganizations except in a "Type C" when cash or other property is also used in the transaction.

Accepted Answer

Liabilities are not considered boot in corporate reorganizations unless it is a Type C reorganization where cash or other property is also involved.

Question 16

The continuity of business enterprise requires that at least 40% of the target's assets are acquired with stock.

Accepted Answer

This statement is incorrect. The continuity of business enterprise rule requires that at least 70% of the target company's assets (both tangible and intangible) must be acquired with stock in order to preserve the tax benefits of the transaction.

Question 17

When the § 382 limitation is evoked, the acquiring corporation is limited in its use of the tax loss carryover of the loss corporation. The limitation is based on the net present value of the loss corporation using the Federal long-term discount rate.

Accepted Answer

The § 382 limitation is based on the value of the loss corporation's stock immediately before the ownership change multiplied by the long-term tax-exempt rate, not the net present value of the loss corporation using the Federal long-term discount rate.

Question 18

A tax avoidance motive is essential in establishing a sound business purpose.

Accepted Answer

Tax avoidance is not a sound business purpose. A sound business purpose is a legitimate reason for engaging in a transaction, such as increasing profits or achieving efficiency. Tax avoidance, on the other hand, involves manipulating the tax system to reduce or eliminate taxes owed without any legitimate business purpose. Therefore, a tax avoidance motive would not be essential in establishing a sound business purpose.

Question 19

When a corporation has cancellation­of­debt relief in a "Type G" reorganization, the corporation reduces its benefits in tax items such as earnings and profits.

Accepted Answer

The answer of When a corporation has cancellation­of­debt relief in...

Question 20

If the successor corporation's current­year 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.

Accepted Answer

This statement is true. The unused § 382 limitation can be carried forward and added to the next year's limitation if the successor corporation's taxable income is not sufficient to utilize the full limitation in the current year.

Quiz 7: Corporations: Reorganizations

The application of the § 382 limitation to credits requires determining the income tax reduction benefit when applying the § 382 limitation to deductions.

When applying the § 382 limitation to deductible losses and credits, the § 382 limit first is applied to capital loss carryovers, and then to NOLs.

If the acquiring corporation purchased 25% of target stock for cash ten years ago, the acquiring corporation can still meet the "Type C" reorganization requirement that 80% of the target's assets be acquired with stock.

An exchange of common stock for preferred stock or bonds for preferred stock can qualify as a "Type E" reorganization.

The year in which the ownership shift occurs for a corporation, the NOL carryforward is limited not only by the § 382 annual limitation, but also by the percentage of the year remaining.

The continuity of interest requires that all target shareholders receive some acquiring stock.

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

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.

The distinguishing characteristic of a "Type D" reorganization is the acquiring corporation is the one transferring assets to the target corporation in exchange for a controlling interest in the target.

Without evidence to the contrary, the IRS views transactions occurring within one year of a reorganization as part of the restructuring.

In a divisive "Type D" reorganization, the distributing corporation obtains control of the new target by exchanging some of its assets for at least 80% of the new target's outstanding stock.

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.

In an acquisitive "Type D" reorganization, substantially all of the target corporation's assets must be transferred to the acquiring corporation for stock amounting to at least 50% of the total acquiring stock.

For a capital restructuring to qualify as a "Type E," there must be at least a 50% change in the common stock ownership.

Liabilities generally are not considered boot in corporate reorganizations except in a "Type C" when cash or other property is also used in the transaction.

The continuity of business enterprise requires that at least 40% of the target's assets are acquired with stock.

When the § 382 limitation is evoked, the acquiring corporation is limited in its use of the tax loss carryover of the loss corporation. The limitation is based on the net present value of the loss corporation using the Federal long-term discount rate.

A tax avoidance motive is essential in establishing a sound business purpose.

When a corporation has cancellationofdebt relief in a "Type G" reorganization, the corporation reduces its benefits in tax items such as earnings and profits.

If the successor corporation's currentyear 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.

Quiz 7: Corporations: Reorganizations

The application of the § 382 limitation to credits requires determining the income tax reduction benefit when applying the § 382 limitation to deductions.

When applying the § 382 limitation to deductible losses and credits, the § 382 limit first is applied to capital loss carryovers, and then to NOLs.

If the acquiring corporation purchased 25% of target stock for cash ten years ago, the acquiring corporation can still meet the "Type C" reorganization requirement that 80% of the target's assets be acquired with stock.

An exchange of common stock for preferred stock or bonds for preferred stock can qualify as a "Type E" reorganization.

The year in which the ownership shift occurs for a corporation, the NOL carryforward is limited not only by the § 382 annual limitation, but also by the percentage of the year remaining.

The continuity of interest requires that all target shareholders receive some acquiring stock.

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

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.

The distinguishing characteristic of a "Type D" reorganization is the acquiring corporation is the one transferring assets to the target corporation in exchange for a controlling interest in the target.

Without evidence to the contrary, the IRS views transactions occurring within one year of a reorganization as part of the restructuring.

In a divisive "Type D" reorganization, the distributing corporation obtains control of the new target by exchanging some of its assets for at least 80% of the new target's outstanding stock.

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.

In an acquisitive "Type D" reorganization, substantially all of the target corporation's assets must be transferred to the acquiring corporation for stock amounting to at least 50% of the total acquiring stock.

For a capital restructuring to qualify as a "Type E," there must be at least a 50% change in the common stock ownership.

Liabilities generally are not considered boot in corporate reorganizations except in a "Type C" when cash or other property is also used in the transaction.

The continuity of business enterprise requires that at least 40% of the target's assets are acquired with stock.

When the § 382 limitation is evoked, the acquiring corporation is limited in its use of the tax loss carryover of the loss corporation. The limitation is based on the net present value of the loss corporation using the Federal long-term discount rate.

A tax avoidance motive is essential in establishing a sound business purpose.

When a corporation has cancellation­of­debt relief in a "Type G" reorganization, the corporation reduces its benefits in tax items such as earnings and profits.

If the successor corporation's current­year 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.

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

When a corporation has cancellationofdebt relief in a "Type G" reorganization, the corporation reduces its benefits in tax items such as earnings and profits.

If the successor corporation's currentyear 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.