Question 1

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.

Accepted Answer

When liabilities are assumed by the acquiring corporation in a Type C reorganization and cash or other property is exchanged, it is considered boot and can potentially destroy the tax-free treatment of the reorganization.

Question 2

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

Accepted Answer

In a "Type B" reorganization, voting stock of the acquiring corporation must be the sole consideration exchanged with the target corporation or its shareholders. Other forms of consideration, such as cash or debt, are not allowed.

Question 3

Debt security holders recognize gain when the principal amount of the securities received is greater than the principal amount given up.

Accepted Answer

Debt security holders recognize gain when they receive more than the principal amount they gave up, which is sometimes called a premium or a capital gain.

Question 4

United States tax policy tries to encourage business development.

Accepted Answer

The United States tax policy includes provisions to encourage business development, such as deductions for business expenses and tax credits for research and development. These incentives aim to promote economic growth and job creation.

Question 5

The "Type A" corporate reorganization can run afoul of the continuity of interest doctrine more easily than a "Type C," because with a "Type A" the Code does not require that the target shareholders receive common stock of the acquiring corporation in exchange for their ownership of the target.

Accepted Answer

The continuity of interest doctrine requires that the target shareholders receive stock in the acquiring corporation in order to maintain a tax-free reorganization status. This requirement is only explicitly stated in a "Type C" reorganization, not in a "Type A." Therefore, it is easier for a "Type A" reorganization to run afoul of the doctrine if the target shareholders do not receive common stock in the acquiring corporation.

Question 6

If the target corporation in a reorganization has a deficit in earnings and profits,any gains recognized by the shareholders are treated as stock redemptions and not as dividends.

Accepted Answer

The answer of If the target corporation in a reorganization...

Question 7

When planning a corporate reorganization,the tax laws should be considered only after the reorganization has been structured.

Accepted Answer

Tax laws should be considered during the planning stages of a corporate reorganization as they can affect the legal structure and type of reorganization chosen, as well as impact the tax consequences for the company and its stakeholders. Waiting until after the reorganization has been structured may result in missed opportunities to optimize tax efficiency.

Question 8

The tax basis of the stock and securities received by a shareholder pursuant to a tax-free reorganization generally is the same as the basis of the stock and securities surrendered.

Accepted Answer

According to the tax code, the tax basis of the stock and securities received in a tax-free reorganization is generally the same as the basis of the stock and securities surrendered.

Question 9

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.

Accepted Answer

The statement is incorrect. The original court findings were the opposite - businesses were subject to taxation during restructuring. Congress later changed the Code to provide tax benefits for reorganizations.

Question 10

For a corporate restructuring to qualify as a tax-free reorganization,the transaction must have a sound business purpose.

Accepted Answer

The Internal Revenue Service (IRS) allows for certain corporate restructurings to qualify as tax-free reorganizations if they meet specific criteria, including having a valid business purpose such as facilitating a merger or acquisition, reducing costs, or improving efficiency. If the transaction lacks a sound business purpose, it may not qualify for tax-free treatment.

Question 11

Corporate shareholders would prefer to have a gain on a reorganization treated as a dividend rather than as a capital gain,because of the dividends received deduction.

Accepted Answer

This is because the dividends received deduction reduces the taxable income of the corporation by the amount of the dividend received, resulting in lower corporate income taxes. On the other hand, capital gains are not eligible for this deduction.

Question 12

In the "Type A" merger,the acquiring corporation must assume all of the liabilities (known and contingent)of the target,but in the "Type A" consolidation only those liabilities selected by the new corporation need be transferred.

Accepted Answer

In a Type A consolidation, the acquiring and target corporations combine to form a new corporation, and all liabilities of both corporations automatically transfer to the new entity without the need for selection. The statement incorrectly implies that only selected liabilities transfer in a Type A consolidation.

Question 13

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

Accepted Answer

Type A reorganizations involve the merger or consolidation of two or more corporations that must comply with certain statutory requirements at the state, federal, or foreign level.

Question 14

Corporate reorganizations can meet the requirements to qualify as like-kind exchanges if there is no boot involved.

Accepted Answer

The answer of Corporate reorganizations can meet the requirements to...

Question 15

To ensure the desired tax treatment,parties contemplating a corporate reorganization should apply for a letter ruling from the IRS.

Accepted Answer

Applying for a letter ruling from the IRS can provide certainty and assurance that the desired tax treatment of a corporate reorganization will be recognized by the IRS.

Question 16

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.

Accepted Answer

The answer of Shareholders receiving other property as a part...

Question 17

Noncorporate shareholders may elect out of § 368 and recognize losses when property subject to a liability is distributed to them in a corporate reorganization.

Accepted Answer

The answer of Noncorporate shareholders may elect out of §...

Question 18

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

Accepted Answer

The acquiring corporation must be in control (80% of a target corporation's stock)immediately after the reorganization.However,the 80% of the stock need not be acquired through the reorganization.Prior purchased stock can be considered.

Question 19

The gain postponed by a corporation in a corporate reorganization is the difference between the realized gain and the boot recognized.

Accepted Answer

The answer of The gain postponed by a corporation in...

Question 20

In corporate reorganizations in which the target receives property other than stock,gains but not losses can be recognized.

Accepted Answer

According to IRC Section 368(a)(1)(C), if a target corporation receives property other than stock in a corporate reorganization, gains but not losses can be recognized. The recognized gain will be the lesser of the target corporation's realized gain or the fair market value of the property received.

Quiz 7: Corporations: Reorganizations