Deck 7: Corporate Reorganizations

Question 1

The combination of two corporations, pursuant to state law, to form a third corporation, is called a merger.

Answer 1

False

Question 2

Following the transfer of assets, the target company must liquidate in order for there to be a valid "C" reorganization.

Answer 2

True

Question 3

The basis of the property transferred to the acquiring corporation is equal to the target corporation's basis plus any gain recognized by the target on the transfer.

Answer 3

True

Question 4

Target Corporation generally must recognize gain or loss on receipt of stock, securities, and boot in an acquisitive reorganization.

Question 5

In a "C" reorganization, the assumption of target corporation's liabilities by the acquiring corporation can be ignored as long as boot in the form of cash or property does not exceed 20 percent of the fair market value of the assets transferred.

Question 6

It is sufficient to meet just one of the acceptable reorganizational patterns to obtain non-recognition treatment.

Question 7

As long as the business of the target corporation is continued, the full amount of target corporation's NOL will survive in a reorganization.

Question 8

As part of a "C" reorganization, the target corporation must liquidate by distributing solely the stock and securities of the acquiring corporation.

Question 9

In a "B" reorganization, only voting stock of the acquiring corporation (or its parent) may be used to acquire the target corporation.

Question 10

A nontaxable triangular "B" reorganization can be achieved provided that solely voting stock of the acquiring corporation's parent corporation is used.

Question 11

Both "E" and "F" reorganizations are examples of reorganizations that involve only one corporation.

Question 12

The continuity-of-interest doctrine is designed to prevent sales from being treated as nontaxable reorganizations.

Question 13

In a "C" or acquisitive "D" reorganization, the target corporation is required to recognize gain or loss on all stock, securities, boot, or assets distributed to shareholders.

Question 14

In a "C" reorganization, the courts have held that as long as the target corporation transfers substantially all the assets to the acquiring corporation, target is permitted to keep assets that formerly had been essential to the active conduct of its trade or business.

Question 15

To meet the "continuity of business enterprise" requirement, the acquiring corporation must continue the target corporation's historic business.

Question 16

A "D" reorganization can be either acquisitive or divisive.

Question 17

In order for a reorganization to be given non-recognition treatment, a plan of reorganization must be adopted by at least one of the corporations involved in the transaction.

Question 18

It is possible for a reorganization transaction to meet the definition of both a "C" and the acquisitive "D" reorganization.

Question 19

In a "C" reorganization, the result is a parent-subsidiary group.

Question 20

The shareholders of target and acquiring corporations engaged in nontaxable reorganizations are not parties to the reorganization themselves, and may be subject to taxation.

Question 21

R received $1,000 cash in addition to stock in a transaction that meets the requirements of § 355.If the transaction is a spin-off, R's basis for his stock will increase by $1,000.

Question 22

Which one of the following statements is not a requirement for a divisive "D" reorganization?

A)Pro rata distribution of stock.
B)Active business requirement for both the original and controlled corporation.
C)The distribution cannot be a device to distribute earnings.
D)All of the above statements are required.

Question 23

Which one of the following exchanges will not qualify as a tax-free reorganization in an "E" recapitalization?

A)Stock for stock
B)Bonds for stock
C)Stock for bonds
D)Bonds for bonds

Question 24

P Corporation owns 100 percent of R Corporation.P operates a car dealership while R owns a chain of quick-lube franchises.P established R 10 years ago but now finds it advisable to narrow its business focus.P distributes all of its shares in R to its shareholders.The distribution is a taxable dividend distribution.

Question 25

Which one of the following statements concerning the "continuity of interest" doctrine is true?

A)The target corporation's shareholders can only receive stock.
B)According to the Code, at least 50 percent of the consideration received by the target corporation's shareholders as a group must be stock of the acquiring corporation.
C)The target corporation's shareholders can dispose of the acquiring corporation's stock immediately after the transaction, provided it was not a prearranged disposition.
D)All of the above statements are false.

Question 26

Which one of the following statements concerning a reverse triangular merger is false?

A)Subsidiary corporation is merged into target corporation.
B)Voting stock of parent corporation is given to shareholders of target corporation in return for all of target's assets.
C)Parent corporation must obtain at least 80 percent of voting and at least 80 percent of nonvoting stock of the target corporation.
D)All of the above statements are true.

Question 27

Which one of the following statements concerning a creeping "B" reorganization is true?

A)An overall plan is required.
B)The period of time for acquisition to be carried out is limited to five years.
C)The acquisition may be made for cash as well as voting stock.
D)Any prior cash purchase will invalidate the reorganization.

Question 28

A split-up occurs when a parent corporation distributes the stock of two or more subsidiary corporations to its shareholders in exchange for all of their stock in the parent as part of a complete liquidation of the parent.

Question 29

Which one of the following statements concerning the "continuity of business enterprise" doctrine is true?

A)The acquiring corporation must continue all of the acquired corporation's lines of business to qualify as continuing the business.
B)The acquiring corporation may not sell any of the target corporation's assets to qualify as using target's assets in a business.
C)As long as the acquiring corporation uses a significant portion of target's assets in a business, it is immaterial that they are used in a different manner than target used them.
D)All of the above statements are false.

Question 30

Which one of the following statements concerning a "C" reorganization is true?

A)Target's shareholders normally must approve the sale of assets and liquidation.
B)Acquiring corporation shareholders need not formally approve the acquisition.
C)"C" reorganization is sometimes called the "practical merger."
D)All of the above statements are true.

Question 31

X Corporation, which desires to obtain operations of Z Corporation, reorganizes by issuing voting stock equal to 35 percent of its total outstanding stock in exchange for all the assets of Z Corporation.Z Corporation then liquidates, distributing stock of X Corporation to its shareholders in exchange for their stock in Z.This would be referred to as

A)An "A" reorganization
B)A divisive "D" reorganization
C)A "C" reorganization
D)A "B" reorganization

Question 32

L Corporation transferred $100,000 cash and bonds to a subsidiary in exchange for all of its stock, which it distributed to its shareholders.The distribution is a nontaxable spin-off.

Question 33

A split-off occurs when the parent corporation distributes the stock of a subsidiary to stockholders who do not surrender any of their stock in the parent for stock in the subsidiary.

Question 34

Which one of the following statements about a "B" reorganization is true?

A)The transferee must acquire control in the reorganization.
B)If the transferee purchases stock of the target corporation, it will never qualify for a "B" reorganization.
C)A "B" reorganization results in only one surviving corporation.
D)All of the above statements are false.

Question 35

Control of the target corporation must be obtained in all reorganizations in order to avoid recognizing income.In reorganizations other than a type "D," what constitutes "control" following a reorganization?

A)Owning 80 percent or more of voting stock and 80 percent or more of nonvoting stock
B)Owning 50 percent of all assets
C)Owning 80 percent of total stock
D)All of the above answers are false.

Question 36

As part of a "C" reorganization, T Corporation transfers assets with a basis of $200,000 and a fair market value of $500,000.T receives stock of A Corporation worth $400,000 and $100,000 worth of other property with a basis to A of $75,000.What is the basis of the property transferred to A?

A)$400,000
B)$75,000
C)$200,000
D)$100,000

Question 37

A distributing corporation distributes solely stock or securities of a controlled corporation.Gain or loss is recognized by the distributing corporation.

Question 38

Which one of the following statements concerning the requirements for a nontaxable reorganization is false?

A)The reorganization must meet regulations concerning either "continuity of interest" or "continuity of business enterprise."
B)The reorganization must conform to one of several qualifying patterns.
C)The transaction must have a business purpose.
D)There must be a plan of reorganization that is adopted by each corporation involved in the transaction.

Question 39

S and J, Inc.decided to change its name to SJ Company.What type of reorganization is this?

A)Just changing a corporate name is not a reorganization.
B)"G" reorganization
C)"F" reorganization
D)"D" reorganization

Question 40

Which one of the following statements is not a step in an "A" reorganization by statutory merger?

A)Target corporation transfers its assets and liabilities to acquiring corporation in exchange for part of acquiring corporation's stock.
B)Target exchanges acquiring stock received for part of shareholders' target stock.
C)Target corporation shareholders become shareholders in acquiring corporation.
D)Target dissolves.

Question 41

In which types of reorganization do tax attributes not transfer to the acquiring corporation?

A)"A" and "C" reorganizations
B)"B" and divisive "D" reorganizations
C)Acquisitive "D," "F," and "G" reorganizations
D)None of the above

Question 42

In a "C" reorganization, Target Corporation transferred all of its assets except land to Acquiring Corporation.The land was worth $600,000 (basis $520,000).The transferred assets were worth $20 million and had a basis of $16 million in the hands of Target.In exchange, Target received stock of Acquiring worth $19.4 million, cash of $200,000, and an office building worth $400,000 (basis to Acquiring was $260,000).Target liquidates, subject to the rules of § 361.How much gain must Target recognize?

A)None
B)$80,000 on land
C)$140,000 on office building
D)$600,000 on the assets received
E)$600,000 on the assets received and $80,000 on the land distributed

Question 43

In a valid "C" reorganization, Target transfers assets with a basis of $1 million and a fair market value of $1.5 million and receives stock with a fair market value of $1.3 million and $200,000 boot.Target has no remaining assets.Target liquidates by transferring the stock and boot to its shareholders.The amount of gain Target must recognize is

A)$0
B)$200,000
C)$500,000
D)None of the above

Question 44

All of the stock of P Corporation is owned by two individuals, J and K.P owns all of the stock of Q that it acquired by purchase 10 years ago.P manufactures disk drives while Q manufactures floppy disks.Both corporations have substantial E&P.J and K are deadlocked on the direction of their businesses.As a result, they have agreed to go their separate ways with J taking over the business of Q.The most logical way to accomplish their objective is a

A)Spin-off
B)Split-off
C)Split-up
D)Partial liquidation
E)Redemption

Question 45

Which one of the following statements regarding E&P carryover is false?

A)E&P of target corporation only is considered.
B)The loss corporation's deficit in E&P may be used to offset the E&P of the profitable corporation.
C)A deficit in E&P can be used to offset E&P arising from the separate corporations in the tax year prior to the transfer.
D)All are false.

Question 46

Code § 382 limits the deductibility of NOLs acquired from loss corporations, if there has been a substantial change in ownership-a so-called "ownership change." In which one of the following situations has ownership change occurred?

A)R owns 1,000 shares of Q Corporation.Q Corporation has 1,000 shares outstanding.R sells 400 shares to S Corporation.
B)Same as above, except Q Corporation issues 200 shares each to T and U later that same year.
C)M owns 10 percent of Loss Corporation.She purchased additional stock, increasing her ownership to 15 percent.
D)Loss Corporation, publicly held, has been actively traded such that there has been a complete change in ownership.At no time did one shareholder own more than 5 percent of stock.

Question 47

Which of the following resembles a redemption?

A)Spin-off
B)Split-off
C)Split-up
D)None of the above

Question 48

In a statutory merger, P Corporation transfers assets worth $250,000 (basis $200,000) in exchange for M Corporation's stock worth $250,000.What is M Corporation's basis in the assets?

A)$250,000
B)$200,000
C)$50,000
D)None of the above

Question 49

Mr.A and Ms.B own all of the stock of Salt which in turn owns all of the stock of Pepper.Salt acquired Pepper 15 years ago.Both corporations conduct active businesses and have substantial E&P.During the year, Salt distributed the stock of Pepper to A and B.Both A and B each received 100 shares of Pepper stock worth $50,000.In addition, they both received a Pepper bond with a face value of $10,000 and worth $9,000.Due to the distribution, A and B will each report (assuming the transaction meets the conditions of § 355)

A)No gain or loss
B)$60,000 dividend
C)$59,000 dividend
D)$10,000 dividend
E)$9,000 dividend

Question 50

Network Corporation is a publicly traded corporation with its stock widely held.It owns all of the stock of Cable Corporation.Both corporations have substantial E&P.A recent government ruling required Network to divest itself of Cable.As a result, Network distributed all of the stock of Cable to its shareholders.One Network shareholder, T, received 50 shares of Cable worth $2,000.These shares had a basis to Network of $500.T must recognize

A)A dividend of $2,000
B)A capital gain of $2,000
C)No gain or loss
D)A dividend of $500
E)A capital gain of $500

Question 51

Under Code § 382, if either an owner shift or equity structure shift has occurred, the test for an "ownership change" must be made.Which is true of an owner shift?

A)An owner shift occurs only when a 5 percent shareholder (determined before or after the change) buys or sells stock.
B)For purposes of the owner shift, the effect of a stock redemption on the stock ownership percentage is ignored.
C)Owner shift can occur if a purchaser not owning 5 percent acquires sufficient stock to meet the 5 percent threshold.
D)All of the above are true.

Question 52

R Corporation is merged into B Corporation in an "A" reorganization on June 30, 2012.R has a $250,000 NOL carryover.B has taxable income (before the NOL deduction) of $800,000 for the year ending December 31, 2012.How much of R's NOL can B deduct on the 2012 tax return? (Assume §382 does not apply.)

A)$0
B)$250,000
C)$50,000
D)$125,000

Question 53

As part of a plan of reorganization, S received the following assets in exchange for a share of stock with a $75 basis: One share of stock worth $\quad \$ 50$
Cash $\quad \$ 20$ What is S's recognized gain or loss on this exchange?

A)$25 loss
B)$20 gain
C)$5 loss
D)No gain or loss is recognized.

Question 54

Which of the following statements is true?

A)In an "A" reorganization, the surviving corporation can use all of the acquired corporation's NOL without limitation.
B)In a "C" reorganization, the target corporation's E&P disappears.
C)In a "B" reorganization, the acquiring corporation inherits the target corporation's tax attributes.
D)All of the above statements are false.

Question 55

In her landmark case, Evelyn Gregory found that

A)Meeting the literal requirements of the law is not necessarily sufficient to achieve your objective.
B)The General Utilities doctrine was a blessing for taxpayers.
C)Avoiding dividend equivalency requires a meaningful reduction in the shareholder's interest.
D)Reducing the size of your business by fire is a genuine corporate contraction.
E)None of the above

Question 56

Which one of the following statements regarding computation of the limitation of NOL carryover described in § 382, relating to the acquisition of "loss corporations," is true?

A)The value of the loss corporation is considered to be the amount paid by the purchaser.
B)It is assumed that the equity of the loss corporation immediately before change in ownership is invested in tax-exempt securities that pay interest at a rate prescribed by statute.
C)The amount of NOL carryover that can be used is a product of the FMV of the corporation's stock before the change and the "long-term tax-exempt rate."
D)All are true.

Question 57

Code § 384 limits the ability of a loss corporation to use its loss by purchasing an acquired corporation's assets that have a built-in gain.Which one of the following statements is not a condition of § 384 regarding built-in gains?

A)Either Target or Acquiring must have a net unrealized built-in gain.
B)Acquiring corporation must not have an NOL carryforward.
C)There must be a stock acquisition or asset acquisition.
D)All of the above are conditions of § 384.

Question 58

X, as part of a reorganization, exchanges a security with a principal amount of $2,000 and a fair market value of $2,100, for a security with a principal amount of $2,500 and a fair market value of $2,800.The amount of boot X received is

A)$0
B)$100
C)$500
D)$560
E)$700

Question 59

Which of the following resembles a dividend?

A)Spin-off
B)Split-off
C)Split-up
D)None of the above

Question 60

As part of a "C" reorganization, T Corporation transfers assets with a basis of $300,000 and a fair market value of $500,000.T receives stock of A Corporation worth $400,000 and $100,000 worth of other property with a basis to A of $75,000.What is the basis of the other property received by T Corporation as part of the consideration from A Corporation?

A)$75,000
B)$100,000
C)$300,000
D)$200,000

Question 61

Brothers A and B each owns 50 percent of the stock of P.P Corporation manufactures coats, and its wholly owned subsidiary, Q, manufactures ties.Q was acquired 20 years ago.During the current year, A and B squabbled over company policy and B decided he wanted to go his separate way.Accordingly, P distributed the stock of Q to B in exchange for all of B's stock in P, for which he had a basis of $15,000.The Q stock was worth $100,000.B will report

A)Dividend income of $ 100,000
B)Dividend income of $85,000
C)Capital gain of $85,000
D)No gain or loss
E)None of the above

Question 62

Under Code § 355, nonrecognition of gain or loss is granted only to distributions of stock or securities of a "controlled" corporation.Control is present where

A)The distributing parent corporation owns at least 80 percent of the voting power of all classes of the subsidiary's stock entitled to vote, and at least 50 percent of the total number of shares of all other classes of stock.
B)The distributing parent corporation owns at least 51 percent of the voting power of all classes of the subsidiary's stock entitled to vote, and at least 51 percent of the total number of shares of all other classes of stock.
C)The distributing parent corporation owns at least 80 percent of the voting power of all classes of the subsidiary's stock entitled to vote, and at least 80 percent of the total number of shares of all other classes of stock.
D)None of the above is true.

Question 63

S and P each owns 50 shares of the outstanding stock of G Corporation which specializes in framing pictures.G owns all 100 shares of the outstanding stock of W Corporation.S and P caused G to form W many years ago to manufacture frames.This year S and P have decided to divide the corporate assets and part ways.To this end, G distributed all of the stock in W Corporation to S for all of her stock in G.This type of corporate division is referred to as

A)A liquidation
B)A spin-off
C)A split-off
D)None of the above