Deck 7: Corporations: Reorganizations

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.

Answer 1

True

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.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

United States tax policy tries to encourage business development.

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.

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.

Question 7

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

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.

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.

Question 10

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

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.

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.

Question 13

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

Question 14

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

Question 15

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

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.

Question 18

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

Question 19

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

Question 20

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

Question 21

The so-called "anti-stuffing" rules are designed to thwart shareholders from contributing assets to a loss corporation,chiefly to increase its value for the computation of the § 382 limitation.

Question 22

The step transaction doctrine is helpful in reorganizations such as a "Type C" and acquisitive "Type D" where all the assets are not desired.

Question 23

A unique characteristic of a "Type G" reorganization is that the liabilities of the target corporation are liquidated and not assumed by the acquiring corporation.

Question 24

Since the § 382 limitation is an annual amount,in the year of the restructuring the entire limit can be utilized.Thus,this rule may provide windfalls for reorganizations occurring toward the end of the corporate tax year.

Question 25

In the business purpose requirement for tax-free treatment of a reorganization,it is the shareholder's business purpose that is paramount.

Question 26

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 not more than 50 percent of the total acquiring stock.

Question 27

The § 382 limitation on the use of capital loss carryovers is triggered when there is a change in ownership (value)of more than 50 percentage points for the shareholders owning at least 5% of the stock.

Question 28

Opal exchanges her 1,000 shares of voting stock with a value of $100,000 for 100 bonds each with a face value of $1,000.This qualifies as a tax-free "Type E" reorganization.

Question 29

Taxpayers can utilize § 269 to ensure receiving the full tax benefits of carryovers that expire due to the yearly § 382 limitation.

Question 30

Besides the statutory requirements,reorganizations must meet several judicially created doctrines.

Question 31

The divisive "Type D" reorganization requires that acquiring corporation form a subsidiary to receive all or part of target corporation's assets in exchange for stock.After the transaction,a parent-subsidiary controlled group exists.

Question 32

A "Type E" reorganization is a recapitalization that has tax significance for the shareholders,but not for the corporation involved.

Question 33

With a divisive "Type D" reorganization,two corporations can be created to receive part of the assets of a distributing corporation in exchange for stock,providing that the distributing corporation receives a controlling interest in the new corporations.

Question 34

The continuity of interest and the continuity of business enterprise requirements prevent transactions that appear to be a sale from qualifying for tax-free treatment of a reorganization.

Question 35

The end results of a "Type C" reorganization are very similar to a "Type A" merger,but all liabilities of the target need not be assumed in a "Type C" reorganization.

Question 36

A present value analysis is required to compute the § 382 limitation for any given year.

Question 37

The "Type F" corporate reorganization includes changes in name,location,and changing from a taxable entity to any flow-through entity.

Question 38

For the "Type G" reorganization,the continuity of interest test is more stringent than for other reorganizations,because the corporation is insolvent and the owners need to be protected.

Question 39

A more than 50 percentage point ownership shift evoking the § 382 limitations can occur with a "Type E" reorganization when the shareholders exchange their shares for bonds.

Question 40

After a tax-free reorganization,the remaining corporation may not combine the earnings and profits (E & P)of the acquiring and target corporations.The E & P of the acquiring corporation may be used for dividend payments only after the target corporation's E & P are fully utilized.

Question 41

One of the tenets of U.S.tax policy is to encourage business development.Which of the following Code sections does not support this tenet?

A)Section 351,which allows entities to incorporate tax-free.
B)Section 1031,which allows the exchange of stock of one corporation for stock of another.
C)Section 368,which allows for tax-favorable corporate restructuring through mergers and acquisitions.
D)Section 381,which allows the target corporation's tax benefits to carryover to the successor corporation.
E)All of the above provisions support the tenet.

Question 42

Burnbay Corporation wants Current Corporation to become a 100% owned subsidiary.Burnbay acquires 90% of Current's stock (worth $300,000)by exchanging its common voting stock with the shareholders of Current.Since 10% of the Current shareholders are not interested in being common shareholders of Burnbay,they retain their shares.This transaction qualifies as what type of reorganization?

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

Question 43

All of the following statements are true about gains recognized in a corporate reorganization except:

A)Taxable amounts in a reorganization are classified as a dividend or capital gain.
B)Corporate shareholders would prefer taxable amounts in a reorganization be classified as a capital gain.
C)Individuals are taxed at the same rate for dividends and capital gains.
D)Capital gains and dividend income can be totally eliminated in a corporate reorganization with careful tax planning.
E)All of the above statements are true.

Question 44

Perry owns 80% of Weed Corporation and Aimee owns the other 20%.In exchange for all of the Weed stock,Perry receives 3,400 shares of Grass Corporation common stock (value $70,000),and Aimee receives 50 shares of Grass preferred (value $20,000).Perry also receives $10,000 in bonds.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 45

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

A)"Type B" reorganizations are rather complicated because a parent-subsidiary relationship is created by the transaction.This can cause problems for shareholders.
B)The requirement that only voting stock may be used as consideration in a "Type B" reorganization by the acquiring corporation is a distinct disadvantage.
C)The acquisition of liabilities can cause problems with a "Type B" reorganization.If the liabilities are greater than 20% of the asset value,the 80% control requirement is not met.
D)Since the shareholders of the target are likely to have greater than a 50 percentage point ownership change,the § 382 limitation usually apply to "Type B" reorganizations.
E)All of the above statements are true.

Question 46

North Corporation acquires 90% of South's assets by exchanging $600,000 of its voting stock and assuming $300,000 of South's liabilities.South uses part of its remaining $100,000 in cash to satisfy its $40,000 in liabilities not assumed by North.South then liquidates by transferring the North stock and the $60,000 cash to its shareholders in exchange for their South stock.

A)This qualifies as a "Type A" reorganization.
B)This qualifies as a "Type B" reorganization.
C)This qualifies as a "Type C" reorganization.
D)This is a taxable transaction.
E)None of the above is correct.

Question 47

Jupiter Corporation acquires all of Titian Corporation's stock in exchange for its voting stock.Iris received 1,000 shares of Jupiter valued at $50,000 for her 8,000 shares of Titian that cost Iris $100,000 five years ago.In addition to the Jupiter stock,she receives a $30,000 bond.How does Iris treat this transaction for tax purposes?

A)Iris recognizes a loss of $50,000.Her Jupiter stock basis is $50,000.
B)Iris recognizes a loss of $20,000.Her Jupiter stock basis is $80,000.
C)Iris recognizes a $20,000 loss and a $25,000 gain.Her Jupiter stock basis is $105,000.
D)Iris realizes a $20,000 loss that is not recognized.Her Jupiter stock basis is $120,000.
E)None of the above.

Question 48

Cardinal Corporation redeems all of its voting common stock.Cardinal then exchanges this redeemed stock with Wren corporation for 40% of Wren's voting common and nonvoting preferred stock.The Wren stock was distributed to the Cardinal shareholders.After the transaction,both Cardinal and Wren corporations still exist.The former Cardinal shareholders are now shareholders of Wren.This transaction qualifies as a(n):

A)"Type A" reorganization.
B)"Type B" reorganization.
C)"Type C" reorganization.
D)Acquisitive "Type D" reorganization.
E)Taxable event.

Question 49

Gravity Corporation creates Earth Corporation.It transfers most of its assets (net value $900,000)to Earth.At approximately the same time,Magnet Corporation also transfers all of its assets (net value $90,000)to Earth.Gravity liquidates by transferring its remaining assets,$100,000 cash and 1,000 shares of Earth,to its sole shareholder,Zia,in exchange for all of her Gravity stock.Zia's basis in her Gravity stock was $300,000.Magnet liquidates by transferring 100 shares of Earth to its sole shareholder,Amos,in exchange for all of his Magnet stock.Amos's basis in his Magnet stock was $150,000.How will this transaction be treated for tax purposes?

A)This is a taxable transaction.Zia recognizes $700,000 gain and Amos recognizes $60,000 loss.
B)This qualifies as a "Type D" reorganization.Neither Zia nor Amos recognizes a gain or loss.
C)This qualifies as a "Type C" reorganization.Zia recognizes $100,000 gain,Gravity also recognizes $100,000 gain,but Amos will not recognize his loss.
D)This qualifies as a "Type A" reorganization.Zia recognizes $100,000 gain,but Amos will not recognize any loss.
E)None of the above.

Question 50

Rosa Corporation transfers $1 million of its voting stock and $200,000 cash to Clara Corporation in exchange for 90% of its assets.Clara uses all of its remaining assets and the cash received from Rosa to pay its liabilities.Clara then distributes the Rosa stock to its shareholders in exchange for all of their shares of Clara.Lastly,Clara terminates.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 51

Which of the following is false regarding a "Type A" reorganization?

A)The acquiring corporation assumes only those liabilities of the target corporation that are associated with assets.
B)The acquiring corporation does not have to acquire substantially all of the assets of the target corporation.
C)Generally,the dissenting shareholders of the target may have their shares appraised and bought outright if they so desire.
D)Money or other property transferred by the acquiring corporation to the target could be as much as 49% and not destroy the tax-free reorganization consequences for those shareholders that receive stock.
E)None of the above.

Question 52

A shareholder bought 2,000 shares of Zee Corporation for $90,000 several years ago.When the stock is valued at $200,000,Zee redeems these shares in exchange for 6,000 shares of Yea Corporation stock.This transaction meets the requirements of § 368.Which of the following statements is true with regard to this transaction?

A)The shareholder has a recognized gain of $110,000.
B)The shareholder has a postponed gain of $110,000.
C)The shareholder has a basis in the Yea stock of $200,000.
D)Gain or loss cannot be determined because the value of the Yea stock is not given.
E)None of the above are true.

Question 53

Silver Corporation redeems all of Alluvia's 3,000 shares and distributes to her 1,000 shares of Gold Corporation stock plus $20,000 cash.Alluvia's basis in her 30% interest in Silver is $80,000 and the stock's market value is $120,000.At the time Silver is acquired by Gold,the accumulated earnings and profits of Silver are $100,000 and Gold's are $50,000.How does Alluvia treat this transaction for tax purposes?

A)No gain is recognized by Alluvia in this reorganization.
B)Alluvia reports a $20,000 recognized dividend.
C)Alluvia reports a $20,000 recognized capital gain.
D)Alluvia reports a $15,000 recognized dividend and a $5,000 capital gain.
E)None of the above.

Question 54

The French Corporation has assets valued at $1 million with an adjusted basis of $700,000.There are mortgages of $250,000 associated with these assets.Accent Corporation acquires all of French's assets by exchanging $800,000 of its voting stock and assumes $200,000 of French's liabilities.French distributes the Accent stock and remaining liabilities to its shareholders in exchange for their French stock and then liquidates.Which,if any,of the following statements is correct?

A)This restructuring qualifies as a "Type A" reorganization.
B)This restructuring qualifies as a "Type C" reorganization.
C)The restructuring is taxable because liabilities cannot be distributed to shareholders in a tax-free reorganization.
D)Accent recognizes a $50,000 gain on the restructuring.
E)None of the above statements is correct.

Question 55

Yellow Corporation and Green Corporation enter into a "Type A" reorganization.Raul currently holds a 15-year $100,000 Green bond paying 6% interest.In exchange for his Green bond,Raul receives a 5-year $125,000 Yellow bond paying 5% interest.Raul is happy with the Yellow bond because,even though it pays a lower interest rate,the yield provides slightly more interest than the Green bond,and both bonds mature on the same date.How does Raul treat this transaction on his tax return?

A)Raul recognizes gain of $25,000 on the exchange ($125,000 - $100,000).
B)Raul recognizes a $5,000 gain ($100,000 ´ 6% = $120,000 ´ 5%;$125,000 - $120,000 = $5,000).
C)Raul recognizes $1,250 gain ($5,000 ´ 5% ´ 5 years remaining on bond).
D)Raul has no gain because he exchanges a security for a security.
E)None of the above.

Question 56

Target Corporation is merging into Acquiring Corporation under state law requirements.Target has 3,000 shares outstanding,with a value of $100 per share.Joey,one of Target's shareholders,exchanges his 500 Target shares,for which he paid $80 per share,for 1,000 shares of Crow stock,valued at $30 per share,and $5,000 cash.Acquiring owns 40% of Crow stock.How does Joey treat this transaction for tax purposes?

A)Joey recognizes a $5,000 gain.
B)Joey has a recognized $60,000 gain.
C)Joey recognizes no gain or loss.
D)Joey has a recognized loss of $5,000.
E)None of the above.

Question 57

Xian Corporation and Win Corporation would like to combine into one entity.Xian exchanges 40% of its common and preferred stock plus $200,000 cash for 60% of Win's assets and liabilities.Win distributes the Xian stock,cash,unwanted assets,and liabilities to its shareholders in exchange for their outstanding stock.Win then liquidates.

A)This restructuring will qualify as a "Type A" statutory merger.
B)This restructuring will qualify as a "Type B" reorganization.
C)This restructuring will qualify as a "Type C" reorganization.
D)This restructuring will qualify as an acquisitive "Type D" reorganization.
E)This does not qualify as a reorganization under § 368.

Question 58

Carlos purchased 20% of Target Corporation's stock five years ago for $50,000.In a transaction qualifying as a "Type A" reorganization,Carlos received $40,000 cash and 6% of Acquiring Corporation's stock (valued at $60,000)in exchange for his Target stock.Target had $300,000 accumulated earnings and profits prior to the reorganization.How does Carlos treat the exchange for tax purposes?

A)As a sale of stock and recognizes a $50,000 long-term capital gain.
B)As a sale of stock and recognizes a $10,000 long-term capital loss.
C)As a dividend of $40,000.
D)As a stock redemption and recognizes a $40,000 long-term capital gain.
E)Not enough information is available to determine proper treatment.

Question 59

Wall Corporation has assets with a $150,000 basis,$350,000 value,and $50,000 of liabilities.Wall transfers $330,000 of its assets and all of its liabilities to Floor Corporation in exchange for $280,000 of Floor common stock.Wall distributes the Floor stock and its remaining $20,000 cash to Carmen,Wall's sole shareholder,in exchange for all of her Wall stock.Carmen purchased the Wall stock 5 years ago for $290,000.Finally,Wall liquidates.Which,if any,of the following statements is correct?

A)Wall recognizes a $50,000 gain on the reorganization.
B)Carmen recognizes a $20,000 gain and Wall recognizes a $50,000 gain on the reorganization.
C)Wall and Carmen both recognize a $20,00 gain on the transaction.
D)Carmen recognizes a $10,000 gain on the reorganization.
E)None of the above.

Question 60

Which of the following is not a reorganization designated under § 368(a)(1)?

A)Transfers due to a bankruptcy or receivership proceeding.
B)Recapitalization.
C)Transferring assets to a controlled corporation in exchange for stock that is given to the distributing corporation's shareholders.
D)Acquisition of target stock by exchanging voting stock of the acquiring corporation.
E)All of the above are reorganizations listed in § 368(a)(1).

Question 61

Which of the following statements is false regarding the tax benefits from a loss corporation's carryovers that are taken in the current year?

A)The § 382 yearly limitation is applied first to the credit carryovers and then to the loss carryovers (built-in loss,capital loss,or NOL).
B)The § 382 yearly limitation determines the maximum benefit that the successor corporation can obtain in one year from all tax credits and loss carryovers for the year.
C)In addition to the § 382 yearly limitation,a year-of-transfer limitation may also apply.
D)The IRS can disallow tax benefits carryovers when § 269 applies.
E)All of the above statements are true.

Question 62

Hard Corporation has net assets valued at $900,000 and an NOL of $450,000.On January 3 of the current year,Hard is acquired by Soft Corporation in a restructuring qualifying as a tax-free reorganization that causes an ownership shift of 80 percentage points for the Hard shareholders.Soft uses a calendar year for tax purposes.Assuming that the long-term tax-exempt rate is 5%,what is the maximum amount Soft should be willing to pay Hard for its NOL,if Soft uses a 10% discount factor (which is 6.145)for this decision?

A)$450,000.
B)$276,525.
C)$138,263.
D)$191,565.
E)None of the above.

Question 63

Which reorganization is most likely to run afoul of the continuity of interest test?

A)A "Type A" reorganization.
B)A "Type B" reorganization.
C)An acquisitive "Type C" reorganization.
D)An acquisitive "Type D" reorganization.
E)All are equally as likely.

Question 64

Burl Corporation has assets with a value of $500,000 (basis of $300,000)and liabilities of $350,000.Wood Corporation is considering merging with Burl by exchanging 30% of its voting stock and $50,000 cash for Burl.

A)This restructuring can qualify as a "Type A" merger only if Wood acquires all of Burl's assets and liabilities.
B)This restructuring can qualify as a "Type B" only if Wood acquires substantially all of Burl's assets.
C)This restructuring can qualify as a "Type C" only if Wood acquires none of Burl's liabilities.
D)This restructuring cannot qualify as a tax-free reorganization for Burl because its liabilities are in excess of the basis of its assets.
E)None of the above.

Question 65

Crater Corporation is owned 70% by Lin Yuan and 30% by Yu Chi.Due to news articles damaging Crater's reputation,Lin and Yu decide to liquidate Crater,which has been in existence for eight years.They create Lunar and Solar corporations to receive all of the manufacturing assets of Crater.Lunar receives the night light manufacturing assets and Solar receives the heat lamp business.All of the Lunar stock and 40% of the Solar stock is given to Lin in exchange for her Crater stock.Yu receives the remaining 60% of Solar in exchange for his Crater stock.Crater then liquidates.Assuming all other requirements are met,these transactions qualify as:

A)A taxable transaction.
B)A "Type A" consolidation.
C)A "Type D" split-off reorganization.
D)A "Type D" split-up reorganization.
E)None of the above.

Question 66

Vintage Corporation has four shareholders: Ursula,Torrez,Siva,and Ron.Ron and Siva started the business 20 years ago,and Ursula and Torrez bought their stock 3 years ago.Vintage's historical business is buying and selling antiques.When Ursula and Torrez joined Vintage,it added a new business,trading in collectibles.
Lately,there has been a disagreement about the future of Vintage.Ron and Torrez are not interested in collectibles,but Ursula and Siva enjoy this part of the business.To resolve this issue,Siva suggests that two new corporations be created: Antique and Collectible.Antique would receive all of the assets of the antique part of the business,and Collectible would receive all of the assets of the collecting part.All of the stock of these two corporations would be received by Vintage and distributed to the appropriate shareholders.Vintage would then terminate.

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 67

Qadira exchanges 40% of her common stock for 80% of newly issued preferred stock in the Pinto Corporation.There was no Pinto preferred stock previously outstanding,and Qadira received only stock.The other 20% of the preferred stock was received by another shareholder,solely in exchange for 10% of his common stock in Pinto.How is this transaction treated for tax purposes?

A)This is a taxable transaction.
B)This transaction qualifies as a "Type E" reorganization.
C)This transaction qualifies as a "Type B" reorganization.
D)This transaction qualifies as like-kind exchange.
E)None of the above.

Question 68

Which of the following is not a requirement for receiving tax-free treatment for a corporate reorganization?

A)The step transaction doctrine should apply.
B)The continuity of business enterprise test must be met.
C)There must be a sound business purpose for the restructuring.
D)There must be a plan of reorganization.
E)All of the above are requirements.

Question 69

Western,Inc. ,is a corporation located in California.In June of the current year,Western moves to Georgia and changes its name to Southern Corporation.Its sole shareholder,Dharma,exchanges all of her stock in Western and receives all of the stock in Southern.

A)This transaction qualifies as a "Type F" reorganization.
B)This transaction qualifies as a like-kind exchange of stock.
C)This move has no tax significance for Federal purposes.
D)This is treated as a liquidation of Western and incorporation of Southern.Thus,gain can be recognized on the liquidation of Western.
E)None of the above.

Question 70

Heart Corporation has net assets valued at $900,000 and an NOL of $300,000.On June 30 of the current year,Heart is acquired by Brain Corporation in a restructuring qualifying as a tax-free reorganization that causes an ownership shift of 30 percentage points for Heart's shareholders.Brain uses a calendar year for tax purposes.Assuming that the long-term tax-exempt rate is 8%,what is the maximum amount of Heart's NOL available to Brain in the current year?

A)$12,000.
B)$240,000.
C)$36,000.
D)$72,000.
E)None of the above.

Question 71

Gravy Corporation and Dirt Corporation enter into merger negotiations.Gravy is very interested in a merger with Dirt because it has a large NOL that Gravy could use to offset its income from manufacturing processed food.Dirt has been sustaining losses in its contaminated dirt removal business.Gravy acquires all of Dirt's assets and liabilities in exchange for 20% of Gravy's stock.Dirt immediately liquidates by transferring Gravy stock to its shareholders in exchange for all of their Dirt stock.How will this transaction be treated for tax purposes?

A)This transaction is a "Type A" reorganization.
B)This transaction is a "Type C" reorganization.
C)This transaction is an acquisitive "Type D" reorganization.
D)This transaction is a taxable.
E)None of the above.

Question 72

Rabbit Corporation and Fox Corporation would like to merge into one company.Rabbit's only asset is a nontransferable chemical process that has a value of $300,000 and Rabbit has liabilities of $100,000.Fox has the manufacturing plant and experience to produce the products from Rabbit's chemical process.Its manufacturing plant has a value of $900,000 with a mortgage of $200,000.Which type of reorganization would be the most appropriate for Rabbit and Fox?

A)"Type A" consolidation reorganization.
B)"Type B" reorganization.
C)"Type C" reorganization.
D)Acquisitive "Type D" reorganization.
E)None of the above is appropriate.

Question 73

Brighton Corporation requires all of its shareholders to relinquish a proportionate number of their common shares,and in return they receive preferred stock.For each 10 shares of common stock,the shareholders receive 1 share of preferred.After the transaction is complete,60% of the shareholders sell their preferred stock to the remaining 40% preferred owners.Which of the following statements is correct?

A)The exchange of common for preferred is not be taxable.
B)The shareholders will recognize gain or loss when they sell their preferred stock to the other shareholders.
C)This qualifies as a "Type E" reorganization.
D)All of the above are correct.
E)None of the above is correct.

Question 74

In which type of divisive corporate reorganization do the shareholders receive stock in another corporation without relinquishing any of their stock in the original corporation?

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

Question 75

Sweet Corporation is in the candy business and sells most of its products in Europe.Lucky Corporation manufactures horse shoes for domestic consumption.Lucky would like to acquire Sweet Corporation because Sweet has large built-in losses in its business assets and foreign tax credit carryovers.To benefit from the built-in ordinary losses,Lucky will sell most of Sweet's business assets upon completion of the reorganization.Those assets with built-in gains will be distributed proportionately before the reorganization to Sweet's shareholders in exchange for 70% of their stock.All of the Sweet shareholders will receive Lucky stock for their remaining shares in Sweet.
Which of the following statements is false?

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

Question 76

OmCo acquired NegCo this year for $1 million.Two of the tax attributes that OmCo found appealing are NegCo's NOL of $500,000 and its negative E&P of $300,000.Before applying any of NegCo's tax benefits,OmCo has taxable income of $525,000 and E&P of $350,000.OmCo pays a dividend of $100,000 to its shareholders.How much of this dividend is taxable?

A)$25,000 is taxable.
B)$50,000 is taxable.
C)$75,000 is taxable.
D)$100,000 is taxable.
E)None of the above.

Question 77

For the last 10 years,Contra Corporation has owned two plants for manufacturing picture frames.One plant is located in an urban area while the other is in the country.There have been some protests at the urban plant regarding air pollution.Therefore,Contra decides to create a new corporation,called Alpha,and place the assets of the urban plant into Alpha in exchange for all of Alpha's stock.Contra distributes this stock proportionately to its shareholders in exchange for 40% of their Contra stock.

A)This transaction qualifies as an acquisitive "Type D" reorganization.
B)This transaction qualifies as a spin-off "Type D" reorganization.
C)This transaction qualifies as a split-up "Type D" reorganization.
D)This transaction does not qualify as a reorganization,because Contra does not liquidate after the transaction.
E)None of the above statements is correct.

Question 78

In which type of reorganization could bonds and other liabilities be exchanged for stock and not cause a recognized gain or loss?

A)A "Type C" reorganization.
B)An acquisitive "Type D" reorganization.
C)A "Type E" reorganization.
D)A "Type G" reorganization.
E)None of the above.

Question 79

Miro Corporation exchanged 10% of its stock with Lobo shareholders for all of the Lobo stock outstanding.At the time of the acquisition by Miro,the fair market value of Lobo was $1.5 million,and the Federal long-term tax-exempt rate was 5%.In the current year,Miro has $600,000 of taxable income.Lobo has excess credits from prior years amounting to $40,000.What is Miro's Federal income tax for the year,if it is in the 34% tax bracket?

A)$204,000.
B)$178,000.
C)$96,000.
D)$55,000.
E)$27,540.

Question 80

Loser Corporation has outstanding bonds of $800,000 and assets valued at $600,000.It also has a $200,000 NOL and capital loss carryovers of $160,000.Loser is solely owed by Dai Won.Loser is restructured and the successor company is LouderCo.Which of the following statements is false?

A)This transaction qualifies as a "Type G" reorganization.
B)Louder can utilize the full amount of Loser's NOL and capital loss carryover,if it elects to reduce the basis in the transferred depreciable assets by the amount of the debt relief it receives.
C)Dai Won must receive a controlling interest in LouderCo for the restructuring to qualify as a tax-free reorganization.
D)The bondholders of Loser become shareholders of LouderCo.
E)All of the above statements are true.