Deck 7: Corporations: Reorganizations

Question 1

For corporate restructurings, meeting the § 368 reorganization "Type" requirements is all that needs to be considered when planning the structure of the transaction.

Answer 1

False

Question 2

The tax treatment of reorganizations almost parallels the Federal income tax treatment for like-kind exchanges.

Answer 2

True

Question 3

While a "Type B" reorganization requires that voting stock be used by the acquiring corporation, in a "Type A," the acquiring can use common or preferred stock and still have the restructuring meet the qualifications of § 368.

Answer 3

True

Question 4

Individual shareholders would prefer to have a gain on a corporate reorganization treated as a capital gain rather than as a dividend, because they can reduce the amount taxable by their basis in the stock involved.

Question 5

The Federal income tax treatment of a corporate restructuring is an extension of allowing entities to form without taxation.

Question 6

The basis for the acquiring corporation in the target's assets is increased by any gain recognized by the target.

Question 7

Originally, the Supreme Court decided that corporate reorganizations were substantially continuations of the prior entities and thus should not be subject to taxation.

Question 8

In corporate reorganizations, if an acquiring corporation is using property other than stock as consideration, it may recognize gains but not losses on the transaction.

Question 9

The gains shareholders recognize as a part of a corporate reorganization may be treated a dividend to the extent of the corporation's E & P.

Question 10

Obtaining a positive letter ruling from the IRS can ensure the desired tax treatment for parties contemplating a corporate reorganization.

Question 11

In a "Type B" reorganization, the acquiring corporation obtains control by exchanging common and preferred stock in the same percentages as the target's outstanding common and preferred stock.

Question 12

In a "Type A" merger, the acquiring corporation may select which liabilities of the target it assumes, but in a "Type A" consolidation, all of the liabilities (known and contingent) must be assumed by the new corporation.

Question 13

Since debt security holders do not own stock, they do not fall under the corporate reorganization rules.

Question 14

For a corporate restructuring to qualify as a tax-free reorganization, the step transaction doctrine must apply.

Question 15

The amount of gain recognized by a shareholder in a corporate reorganization is based on the shareholder's proportionate share of E & P.

Question 16

The "Type B" reorganization requires a continuity of business interest. Therefore, the acquiring corporation must obtain at least 40% of target corporation's stock through the reorganization.

Question 17

When substantially all of the assets of the target corporation are received in exchange for voting stock and selected liabilities, the restructuring can qualify as a "Type C" reorganization.

Question 18

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

Question 19

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.

Question 20

Target shareholders recognize gain or loss when they receive assets (boot) as well as stock in the acquiring corporation in a transaction meeting the § 368 requirements.

Question 21

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

Question 22

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.

Question 23

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.

Question 24

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.

Question 25

The year in which the ownership change 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.

Question 26

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

Question 27

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

Question 28

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.

Question 29

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

Question 30

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.

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

Which of the following statements is true?

A) The dollar amounts involved in reorganizations are generally substantial; thus, it is important that the financial and tax treatment of the reorganization is consistent.
B) A letter ruling indicates the income tax treatment the IRS will apply to the proposed corporate restructuring transaction.
C) Careful planning can ensure that all gains recognized by individual shareholders receive beneficial dividend treatment.
D) ​None of the statements is true.

Question 36

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

Question 37

All of the following statements are true about corporate reorganization except:

A) Taxable amounts for shareholders are classified as a dividend or capital gain.
B) Reorganizations receive treatment similar to corporate formations under § 351.
C) The transfers of stock to and from shareholders qualify for like-kind exchange treatment.
D) The value of the stock received by the shareholder less the gain not recognized (postponed) will equal the shareholder's basis in the stock received.
E) All of the above statements are true.

Question 38

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.

Question 39

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

Question 40

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.

Question 41

Korat Corporation and Snow Corporation enter into an acquisitive "Type D" reorganization. Xin currently holds a 20-year, $10,000 Snow bond paying 4% interest. There are 8 years until the bond matures. In exchange for his Snow bond, Xin receives an 8 year $16,000 Korat bond paying 2.5% interest. Xin thinks this is fair because he will still receive $400 of interest each year and both bonds mature on the same date. How does Xin treat this transaction on his tax return?

A) Xin recognizes no gain or loss on the exchange of bonds.
B) Xin recognizes $750 gain each year for the next 8 years.
C) Xin recognizes $6,000 capital gain.
D) Xin recognizes $6,000 ordinary gain.
E) None of the above.

Question 42

Manx Corporation transfers 40% of its stock and $50,000 in cash to Somali Corporation for $500,000 of assets and all $200,000 of its liabilities. Somali exchanges the Manx stock, cash, and its remaining $100,000 of assets with its shareholders for all of their stock in Somali. After the exchange, Somali liquidates. The exchange qualifies as what type of transaction?

A) "Type A" reorganization.
B) "Type B" reorganization.
C) "Type C" reorganization.
D) Acquisitive "Type D" reorganization.
E) A taxable exchange.

Question 43

A shareholder bought 10,000 shares of Coral Corporation for $50,000 several years ago. When the stock is valued at $90,000, Coral redeems the shares in exchange for 5,000 shares of Blush Corporation stock and a $10,000 Blush bond. This transaction meets the requirements of § 368. Which of the following statements is false with regard to this transaction?

A) The shareholder has a realized gain of $40,000.
B) The shareholder has a postponed gain of $30,000.
C) The shareholder has a basis in the Blush stock of $60,000.
D) The shareholder has a recognized gain of $10,000.
E) All of the above statements are true.

Question 44

Racket Corporation and Laocoon Corporation create Raccoon Corporation. Racket transfers $600,000 in assets for all of Raccoon's common stock. Racket distributes its remaining assets ($300,000) and the Raccoon common stock to its shareholder, Mia, for all of her stock in Racket (basis $950,000) and then liquidates. Laocoon receives all of the preferred stock for its $400,000 of assets. Laocoon distributes its remaining assets ($300,000) and the Raccoon preferred stock to its shareholder, Carlos, for all of his stock in Laocoon (basis $200,000) and then liquidates. How will this transaction be treated for tax purposes?

A) This qualifies as a "Type A" reorganization. Mia recognizes no gain or loss, but Carlos recognizes $300,000 gain.
B) This qualifies as a "Type C" reorganization. Mia and Carlos recognize $300,000 gain, to the extent of the boot.
C) This qualifies as a "Type D" reorganization. Neither Mia nor Carlos recognizes a gain or loss.
D) This is a taxable transaction. Mia recognizes $50,000 loss and Carlos recognizes $500,000 gain.
E) None of the above.

Question 45

The Long Corporation has $500,000 of assets with a basis of $350,000 and liabilities of $125,000. ShortCo acquires Long's assets and $100,000 of liabilities by exchanging $400,000 of its voting stock. Long distributes the ShortCo stock and remaining liabilities to its shareholder in exchange for her Long stock with a basis of $275,000 and then it liquidates. Which, if any, of the following statements is correct?

A) This restructuring qualifies as a "Type A" reorganization with no recognized gains or losses.
B) This restructuring qualifies as a "Type C" reorganization with no recognized gains or losses.
C) This qualifies as either a "Type A" or "Type C" and the shareholder has a $25,000 recognized gain.
D) The restructuring is taxable because liabilities cannot be distributed to shareholders in a tax-free reorganization.
E) None of the above statements is correct.

Question 46

Which of the following statements regarding "Type B" reorganizations is true?

A) Since a parent-subsidiary relationship is created, the tax attribute carryover limitations are problematic.
B) The acquisition of liabilities can cause problems when the liabilities of the target are greater than 20% of the total consideration and the acquiring owned target stock prior to the "Type B" reorganization.
C) The acquisition of common and preferred target stock by the acquiring can be directly from the shareholders or from the target corporation.
D) The acquiring corporation must distribute the target stock it obtains to its shareholders. The acquiring shareholders do not always have to turn in acquiring stock in exchange for the target stock.
E) All of the above statements are true.

Question 47

Gnat Corporation and Catcher Corporation would like to merge into one company. Gnat has a net value of $700,000 and Catcher's net value is $300,000. They were considering creating a new corporation called GnatCatcher, but Catcher owns valuable patents that cannot be transferred. Therefore, Gnat will transfer all of its assets to Catcher in exchange for 70% of its stock. Gnat will then liquidate by exchanging the Catcher stock with its shareholders for their stock in Gnat. Which, if any, of the following statements is correct?

A) This transaction qualifies as a "Type A" consolidation reorganization.
B) This transaction qualifies as a "Type B" reorganization.
C) This transaction qualifies as a "Type C" reorganization.
D) This transaction does not qualify as a reorganization, because Gnat, the larger corporation, rather than Catcher, the smaller corporation, ceases to exist after the transaction.
E) None of the above statements is correct.

Question 48

Which of the following statements is true regarding "Type A" reorganizations?

A) At least 80% of the acquiring corporation's consideration must be voting stock but the other 20% can be cash or preferred stock.
B) The target shareholders must receive a proprietary interest in the acquiring corporation. This means that target shareholders must receive at least 40% of acquiring's stock.
C) Substantially all of the target's assets must be transferred to the acquiring corporation. This means at least 90% of the net asset value.
D) Assumption of all liabilities for a "Type A" reorganization includes unknown and contingent liabilities.
E) None of the above statements is true.

Question 49

Angus Corporation purchased 15% of Hereford Corporation 4 years ago for $150,000. Angus acquires 75% more of Herford's stock directly from the Hereford shareholders in an exchange for 25% of the Angus common stock currently outstanding. There is still 10% of the Hereford stock held by its original shareholders as they are not interested in being common shareholders of Angus. This transaction qualifies as what type of reorganization?

A) "Type A" reorganization.
B) "Type B" reorganization.
C) "Type C" reorganization.
D) Acquisitive "Type D" reorganization.
E) A taxable exchange.

Question 50

Spoonbill Corporation has assets with a FMV of $800,000 and adjusted basis of $600,000. It has been manufacturing engineering equipment and laboratory tools for the last 8 years. Spoonbill forms a new corporation, Roseate Corporation, by acquiring all of its stock in exchange for the laboratory tool division of Spoonbill. Each of the Spoonbill shareholders receives 1 share of Roseate stock for each 50 shares they own in Spoonbill. How will this transaction be treated for Federal income tax purposes?

A) As a split-off "Type D" reorganization.
B) As a spin-off "Type D" reorganization.
C) As a spit-up "Type D" reorganization.
D) This transaction is treated as a stock dividend.
E) None of the above.

Question 51

Mars Corporation merges into Jupiter Corporation by exchanging all of its assets for 300,000 shares of Jupiter stock valued at $2 per share and $100,000 cash. Wanda, the sole shareholder of Mars, surrenders her Mars stock (basis $900,000) and receives all of the Jupiter stock transferred to Mars plus the $100,000. How does Wanda treat this transaction on her tax return?

A) Wanda recognizes a $100,000 gain. Her Jupiter stock basis is $900,000.
B) Wanda recognizes a loss of $100,000. Her Jupiter stock basis is $800,000.
C) Wanda recognizes a $100,000 gain. Her Jupiter stock basis is $700,000.
D) Wanda realizes a $200,000 loss of which $100,000 is recognized. Her Jupiter stock basis is $1 million.
E) None of the above.

Question 52

In which type of corporate reorganization do shareholders receive stock in at least two other corporations, in exchange for all of the stock in the original corporation?

A) "Type A" consolidation reorganization.
B) "Type B" reorganization.
C) "Type D" acquisitive reorganization.
D) "Type D" split-off reorganization.
E) Some other type of reorganization.

Question 53

Bobcat Corporation redeems all of Zed's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash. Zed's basis in his 20% interest in Bobcat is $100,000 and the stock's value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $200,000 and of Van are $75,000. How does Zed treat this transaction for tax purposes?

A) No gain is recognized by Zed in this reorganization.
B) Zed reports a $50,000 recognized dividend.
C) Zed reports a $50,000 recognized capital gain.
D) Zed reports a $40,000 recognized dividend and a $10,000 capital gain.
E) Not enough information is available to determine proper treatment.

Question 54

Which of the following statements is true concerning all types of tax-free corporate reorganizations?

A) Assets are transferred from one corporation to another.
B) Stock is exchanged with shareholders.
C) Liabilities that are assumed when cash is also used as consideration will be treated as boot.
D) Corporations and shareholders involved in the reorganization will recognize gains but not losses.
E) None of the above statements is true.

Question 55

Saucer Corporation has a value of $800,000, basis in its assets of $670,000, and liabilities of $200,000. Cup Corporation acquires 90% of Saucer's assets by exchanging $550,000 of its voting stock, $20,000 cash, and assuming $150,000 of Saucer's liabilities. The remaining 10% of Saucer's assets not acquired is $80,000 cash. Saucer distributes the Cup stock, $100,000 in cash and associated $50,000 in liabilities to its shareholder, Sam, in exchange for his Saucer stock (basis $560,000). Saucer then liquidates. How will this transaction be treated for tax purposes?

A) As a "Type A" reorganization. Sam recognizes $50,000 of gain and Saucer recognizes $20,000 gain.
B) As a "Type A" reorganization. Sam recognizes $100,000 gain and Saucer recognizes $120,000 gain.
C) As a "Type C" reorganization. Sam recognizes $50,000 of gain and Saucer recognizes $20,000 gain.
D) As a "Type C" reorganization. Sam recognizes $40,000 of gain and Saucer recognizes no gain.
E) As a taxable transaction.

Question 56

Xian Corporation and Win Corporation would like to combine into one entity. Win redeems 90% of its common stock and all of its nonvoting preferred stock, in exchange for 40% of Xian's common and 20% of its nonvoting preferred stock. Win then distributes the Xian stock to its shareholders. Win then becomes a subsidiary of Xian.

A) This is a taxable transaction.
B) This restructuring qualifies as a divisive "Type D" reorganization.
C) This restructuring qualifies as a "Type B" reorganization.
D) This restructuring qualifies as a "Type E" reorganization.
E) This restructuring qualifies as an acquisitive "Type D" reorganization.

Question 57

Ocelot Corporation is merging into Tiger Corporation under state law requirements. Ocelot transfers assets worth $300,000 to Tiger. Ocelot receives 30,000 shares of Tiger stock and $200,000 cash. Ocelot transfers the Tiger stock, $200,000 cash, and all of its liabilities ($50,000) to its shareholder, Van, in exchange for all of his Ocelot stock (basis $100,000). Ocelot then liquidates. How is this transaction treated for tax purposes?

A) Since this qualifies as a "Type A" reorganization, Van recognizes no gain.
B) Since this qualifies as a "Type C" reorganization, Van recognizes a $200,000 gain.
C) Since this qualifies as a "Type A" reorganization, Van recognizes a $150,000 gain.
D) Since this does not qualify as a reorganization, Van recognizes a $150,000 gain.

Question 58

Ula purchased stock in Purple, Inc., 6 years ago for $150,000. Purple has assets with a value of $225,000 ($175,000 basis) and liabilities of $60,000. Purple transfers $200,000 of assets and all of its liabilities to White Corporation in exchange for White common stock. Purple distributes the White stock and its $25,000 remaining asset (cash) to Ula in exchange for all of her Purple stock. Purple then liquidates. How is this transaction treated for tax purposes?

A) Ula recognizes a $15,000 gain on the exchange.
B) Ula recognizes a $25,000 gain on the exchange.
C) Ula recognizes a $25,000 gain and Purple recognizes a $25,000 gain on the exchange.
D) Purple recognizes a $50,000 gain on the exchange.

Question 59

Acquiring Corporation transfers $1 million of its voting common stock and $100,000 cash to Target Corporation in exchange for 90% of the Target assets. The assets retained by Target are used to settle its liabilities. Target then distributes the Acquiring stock and cash received to its shareholders in exchange for all of their Target shares. Target then liquidates. This restructuring qualifies as a:

A) "Type A" reorganization.
B) "Type B" reorganization.
C) "Type C" reorganization.
D) "Type D" reorganization.
E) Taxable exchange.

Question 60

Against the will of Rally Corporation's management, Buoy Corporation offers Rally's shareholders 2 shares of Buoy common stock for each share of Rally common and 50 shares of Buoy common for each share of Rally preferred. The results of a hostile takeover yield Buoy 85% of Rally common stock and 100% of the preferred. The only stock it did not obtain was that owned by management. This transaction qualifies as a(n):

A) "Type A" consolidation.
B) "Type B" reorganization.
C) "Type D" split-up reorganization.
D) Acquisitive "Type D" reorganization.
E) Taxable event.

Question 61

Asity Corporation is interested in acquiring the majority of Pitta Corporation's assets. Pitta's assets are currently valued at $950,000, and its liabilities are $250,000. However, there is one operating division of Pitta in which Asity is not interested. Since Pitta desires to be taken over by Asity, Pitta first sells the unwanted division for its net fair market value of $250,000 ($350,000 FMV assets - $100,000 liabilities). Pitta then transfers its remaining assets and liabilities to Asity for $450,000 in common voting stock. Which of the following statements is correct with regards to the proposed restructuring?

A) Continuity of interest does not exist for the Pitta shareholders.
B) The continuity of business enterprise test is failed.
C) There is no sound business purpose for this restructuring.
D) The step transaction can be applied to this transaction.
E) All of the above statements are true.

Question 62

Dahlia owns $100,000 in Crimson Topaz preferred stock. The annual dividend rate on the preferred is 4%. She exchanges this preferred stock for $60,000 in Crimson Topaz bonds paying 4% annual interest and $40,000 in common stock. How is this transaction treated for tax purposes?

A) All of this transaction is taxable.
B) The transaction is not currently taxable as it qualifies as a "Type E" reorganization.
C) Only the exchange of the preferred stock for the common stock is taxable, because of the reduction in preferential treatment upon liquidation.
D) Only the exchange of the preferred stock for the bond is taxable.
E) None of the above.

Question 63

Gato Corporation exchanged 25% of its stock with Lobo for all of its assets. The Gato stock was distributed to the Lobo shareholders in exchange for all of their stock. Lobo then liquidated. At the time of the acquisition by Gato, the value of Lobo was $3 million, and the Federal long-term tax-exempt rate was 4%. In the current year, Gato has $500,000 of taxable income. Lobo has excess credits from prior years amounting to $150,000. What amount of Lobo's credits may Gato use in computing its Federal income tax for the year, if Gato is in the 34% tax bracket?

A) $150,000
B) $120,000
C) $51,000
D) $20,000
E) None of the above

Question 64

Crested Serpent Eagle (CSE) Corporation is owned by Lin Yuan and Yu Chi. It has been in the manufacturing and lumber businesses for 20 years. For liability protection, the manufacturing assets of CSE are transferred to Serpent Corporation for all of its stock. This stock is distributed to Lin Yuan in exchange for her CSE stock. The lumber assets are transferred to Eagle Corporation for all of its stock. Yu Chi receives the Eagle stock in exchange for his CSE shares. CSE then terminates.

A) The transaction qualifies as a spin-off "Type D" reorganization.
B) The transaction qualifies as a split-off "Type D" reorganization.
C) The transaction qualifies as a split-up "Type D" reorganization.
D) The transaction is taxable.
E) None of the above.

Question 65

The tax treatment of the parties involved in a tax-free reorganization almost exactly parallels the treatment under the like-kind exchange provisions. When ____________________ is received, gain may be ____________________ and losses are ____________________.

Question 66

Since the "Type B" reorganization precludes the use of ____________________, gain or loss is not recognized. In this type of reorganization, a ____________________ relationship between the acquiring and target corporations is created.

Question 67

Which of the following statements is correct with regards to liabilities in corporate reorganizations?

A) While in a "Type A" merger all the liabilities of the target must be acquired, in a consolidation only general liabilities are transferred.
B) In a "Type G" reorganization, the target's liabilities rarely are liquidated.
C) Liabilities are problematic for a "Type C" only when the acquiring corporation transfers other property in addition to common stock.
D) Long-term liabilities (bonds) can be exchanged tax-free in a "Type E" reorganization, as long as the terms of the bonds are greater than 10 years and the interest rates are identical.
E) None of the above.

Question 68

Monal Corporation merged with Bobwhite Corporation two years ago. At the time of the merger, Monal held an earnings and profits (E & P) deficit of $250,000 and Bobwhite had a positive E & P of $200,000. Last year's current E & P was $ 100,000 for the successor company. Despite having only $10,000 E & P for the current year, Monal makes a distribution to its shareholders of $270,000. How is the distribution taxed to the shareholders?

A) $270,000 is taxable.
B) $200,000 is taxable.
C) $110,000 is taxable.
D) $50,000 is taxable.
E) None of the above amounts is correct.

Question 69

Which of the following statements regarding the applicability of the judicial doctrines to a "Type G" reorganization is correct?

A) The continuity of interest doctrine is applied to the creditors rather than the shareholders.
B) The sound business purpose doctrine does not apply because the restructuring is dictated by state proceedings.
C) The continuity of business enterprise doctrine does not apply because the transaction is a bankruptcy.
D) The step transaction doctrine presents a problem, because a "Type G" reorganization make take an extended period of time to complete.
E) All of the above.

Question 70

Besides the statutory requirements for tax-free treatment for corporate reorganizations, there are several judicial requirements. Which of the following is not a judicial requirement for corporate reorganizations?

A) The ownership change doctrine should be met.
B) The continuity of business enterprise test must be met.
C) There must be a sound business purpose for the restructuring.
D) The step transaction doctrine should not apply.
E) All of the above items are judicial requirements for reorganizations.

Question 71

Heart Corporation has net assets valued at $1 million and an NOL of $250,000. On December 31 of last year, Heart is acquired by Brain Corporation, a calendar year taxpayer, in a restructuring qualifying as a tax-free reorganization. Heart shareholders receive 45% of Brain's shares in exchange for all of the Heart stock. Assuming that the Federal long-term tax-exempt rate is 5% and Brain's discount factor is 10%, what is the maximum amount that Brain can use of Heart's NOL this year?

A) $12,500
B) $50,000
C) $100,000
D) $250,000
E) None of the above

Question 72

____________________ is other property received along with stock in a restructuring falling under § 368. If the shareholders receive the other property, it can be taxed as ____________________ and/or ____________________.

Question 73

Cuckoo Corporation has just lost a $500,000 product liability suit. Before the lawsuit, its assets were valued at $600,000 (basis of $400,000), and it had general liabilities of $300,000 and $100,000 of bonds outstanding. It also has a $50,000 capital loss carryover, $10,000 general business credits, and $150,000 NOL. Cuckoo is solely owed by Emmy Lou. A state restructuring creates Turaco as the successor company to Cuckoo. Which of the following statements is false?

A) This transaction qualifies as a "Type G" reorganization.
B) Emmy Lou may not receive any stock in Turaco in the restructuring.
C) When Turaco reduces Cuckoo's tax attributes for the cancellation of debt income relief, it first reduces the capital loss, then the NOL, then the business credit, and lastly basis in the assets.
D) The bondholders of Cuckoo become shareholders of Turaco.
E) All of the above statements are true.

Question 74

Pallid Swift, Inc., is an S corporation located in Colorado. In the past year, PallidSwift has become profitable; but due to its rapid growth, Pallid Swift has no excess cash for distributions. Therefore, Pallid Swift decides that it should become a C corporation.

A) This transaction qualifies as a "Type F" reorganization.
B) This transaction qualifies as a "Type E" reorganization.
C) This change has no tax significance for Federal purposes.
D) This change is a taxable event.
E) None of the above.

Question 75

Burmese Corporation is interested in acquiring Javanese Corporation by transferring 30% of its stock for all of Javanese's assets valued at $500,000 (basis of $150,000) and its $200,000 of liabilities. Javanese has created $50,000 in general business research credits which it cannot use. Javanese concentrates on pharmaceutical research whereas Burmese manufactures sun glasses. Burmese uses a discount factor of 8% and the Federal applicable rate is 4%. Javanese will terminate after the restructuring. How will this transaction be treated for tax purposes?

A) Since Javanese has liabilities in excess of its basis, this excess will be taxable to Javanese.
B) The most that Burmese can use of the general business credits in any year is $4,200.
C) This transaction could qualify as a "Type A" or a "Type C" reorganization.
D) All of the above.
E) None of the above.

Question 76

In a(n) ____________________ reorganization, the acquiring corporation transfers its assets to the target for at least ____________________ percent of the target stock.

Question 77

Weaver Corporation has net assets valued at $800,000 and an NOL of $250,000. On September 30 of the current year, Weaver is acquired by Loom Corporation, a calendar year taxpayer, in a restructuring qualifying as a tax-free reorganization. Weaver shareholders receive 30% of Loom's shares in exchange for all of their Weaver stock. Assuming that the Federal long-term tax-exempt rate is 8%, what is the maximum amount of Weaver's NOL available to Loom in the current year?

A) $250,000
B) $240,000
C) $75,000
D) $64,000
E) None of the above

Question 78

WhydahCo is owned by Gilda and her four nieces and nephews. Gilda owns all the WhydahCo voting stock and its $50,000 bond. She wants to relinquish control of the entity; accordingly, WhydahCo redeems all of Gilda's voting common stock and issues her its preferred stock . She also exchanges her bond for preferred stock. The nonvoting preferred shares owned by the nieces and nephew are exchanged for voting common stock. Which of the following statements is correct?

A) The exchange of a bond for preferred stock is taxable.
B) The exchange of common for preferred is not taxable but the exchange of preferred stock for common stock is taxable.
C) All of these transactions are taxable.
D) The transaction is not currently taxable; this is a "Type E" reorganization.
E) None of the above statements is correct.

Question 79

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.

Question 80

Which of the following statements is false?

A) A "Type B" reorganization is most likely to run afoul of the continuity of interest doctrine because the target remains a separate corporation.
B) Liabilities are problematic for "Type A" and "Type C" reorganizations.
C) The step transaction doctrine can be problematic in acquisitive "Type D" and "Type C" reorganizations.
D) "Type E" and "Type F" are not likely to be subject to the § 382 limitation.
E) All of the statements are true.