Deck 7: Corporations: Reorganizations

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

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

The determination of whether a shareholder's gain qualifies for stock redemption treatment in a corporate reorganization is based on the reduction in the percentage of the stock held in the target corporation when compared to the percentage held in the acquiring corporation.

Question 7

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 8

The treatment of corporate reorganizations is similar to like-kind exchanges.

Question 9

A consolidation is the union of two corporations,whereas in a merger a new corporation is formed to receive the assets of two or more corporations.

Question 10

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 11

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 12

In 1916,the Supreme Court decided that corporate reorganizations were substantially continuations of the prior entities and thus should not be subject to taxation.

Question 13

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 14

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

Question 15

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

Question 16

The two "Type A" reorganizations are mergers and acquisitions.

Question 17

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

Question 18

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 19

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 20

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

Question 21

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 22

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

Question 23

If the acquiring corporation purchased 25% of target stock for cash ten years ago,the acquiring corporation cannot meet the "Type C" reorganization requirement that 80% of the target's assets be acquired with stock requirement.

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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 30

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

Question 31

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 32

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 33

If the successor corporation's current-year taxable income is not sufficient to utilize the full § 382 limitation on carryovers,the amount not utilized is carried forward and added to the next year's limitation.

Question 34

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

Question 35

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

Question 36

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

Question 37

The continuity of business enterprise requires that at least 60% of the target's assets are acquired with stock.

Question 38

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

Question 39

The sound business purpose doctrine and § 269 have the same purpose of disallowing restructurings that are primarily for tax avoidance motives.

Question 40

When a corporation has cancellation-of-debt relief in a "Type G" reorganization,the corporation reduces its benefits in tax attributes such as NOLs and business credits.

Question 41

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 to 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 will qualify as a divisive "Type D" reorganization.
C)This restructuring will qualify as a "Type B" reorganization.
D)This restructuring will qualify as a "Type E" reorganization.
E)This restructuring qualifies as a nontaxable § 368 reorganization.

Question 42

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 will this transaction be treated for tax purposes?

A)Ula recognizes a $25,000 gain on the reorganization.
B)Ula recognizes a $15,000 gain on the reorganization.
C)Ula recognizes a $25,000 gain and Purple recognizes a $25,000 gain on the reorganization.
D)Purple recognizes a $50,000 gain on the reorganization.
E)None of the above.

Question 43

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 44

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 the shares in exchange for 6,000 shares of Yea Corporation stock and a $20,000 car not wanted by Yea.This transaction meets the requirements of § 368.Which of the following statements is true with regard to this transaction?

A)The shareholder has a realized gain of $130,000.
B)The shareholder has a postponed gain of $110,000.
C)The shareholder has a basis in the Yea stock of $90,000.
D)The shareholder has a recognized gain of $20,000.
E)All of the above statements are true.

Question 45

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 46

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 47

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 48

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 49

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 50

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 51

Bobcat Corporation redeems all of Zeb's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash.Zeb'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 Van's are $75,000.How does Zeb treat this transaction for tax purposes?

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

Question 52

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

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 53

GreenCo transfers $400,000 of its common voting stock and $50,000 cash to CurryCo in exchange for 80% of CurryCo's assets.CurryCo uses all of its remaining assets and the cash received from GreenCo to pay its liabilities.CurryCo then distributes the GreenCo stock to its shareholders in exchange for all of their shares of CurryCo.Lastly,CurryCo 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 54

Yoko purchased 10% of Toyger Corporation's stock six years ago for $70,000.In a transaction qualifying as a "Type C" reorganization,Yoko received $50,000 cash and 8% of Angora Corporation's stock (valued at $100,000)in exchange for her Toyger stock.Prior to the reorganization,Toyger had $200,000 accumulated earnings and profits and Angora had $300,000.How does Yoko treat the exchange for tax purposes?

A)As a recognized $50,000 long-term capital gain.
B)As a $50,000 dividend.
C)As a $20,000 dividend and a $30,000 capital gain.
D)As a $30,000 dividend and a $20,000 capital gain.
E)None of the above.

Question 55

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 56

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 57

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 may recognize gains but not losses.
E)None of the above statements is true.

Question 58

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)Corporations prefer to recognize capital gains on reorganizations because they can offset the capital losses they may have.
E)None of the statements is true.

Question 59

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 60

Ocelot Corporation is merging into Tiger Corporation under state law requirements.Ocelot transfers $300,000 of assets to Tiger in exchange for 30,000 shares and $200,000 in 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 will this transaction be 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 $350,000 gain.
E)None of the above.

Question 61

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.

Question 62

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 "Type E" reorganization.
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 63

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 64

Contra Corporation is owned 50% by Terry and 50% by Sammy.Due to news articles damaging Contra's reputation,Terry and Sammy decide to liquidate Contra,which has been in existence for 4 years.They create Alpha and Beta Corporations to receive all of the manufacturing assets of Contra's two picture frame plants.Alpha receives the urban plant manufacturing assets and Beta receives the country manufacturing plant.Terry receives 60% Alpha stock and 40% of the Beta stock and Sammy receives 40% Alpha stock and 60% of the Beta stock.Terry and Sammy turn in their Contra stock and Contra then liquidates.Assuming all other requirements are met,how will this transaction be treated for tax purposes?

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

Question 65

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 60% 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 66

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 67

Winner Corporation acquires all of Loser Corporation on January 1 of this year for $1 million when the Federal long-term tax-exempt rate was 4%.Two of the tax attributes that Winner found appealing are Loser's NOL of $100,000 and its negative E & P of $150,000.Before applying any of Loser's tax benefits,Winner has taxable income of $75,000 and E & P of $50,000.Winner pays a dividend of $100,000 to its shareholders.Assuming that taxable income is equal to the current year's E & P,how much of this dividend is taxable?

A)$100,000 is taxable.
B)$85,000 is taxable.
C)$50,000 is taxable.
D)None is taxable.
E)None of the above.

Question 68

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 in the production of 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 69

Dahlia owns $100,000 in Fuchsia bonds.The interest rate on the bonds is a 4% yearly rate.She exchanges these bonds for $60,000 in Fuchsia bonds paying a 6% yearly rate and $40,000 in Fuchsia preferred stock with a 4% dividend.How is this transaction treated for tax purposes?

A)All of this transaction is taxable.
B)Only the exchange of the bond for the preferred stock is a taxable transaction.
C)Only the exchange of the 4% bond for a 6% is taxable because the interest rate increased.
D)None of the transaction is taxable because it qualifies as a "Type E" reorganization.
E)None of the above.

Question 70

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 71

Dirty Corporation has owned two chemical manufacturing facilities for the last 20 years.One facility is located in Oklahoma while the other is in Oregon.There have been some environmental investigations at the Oregon facility.Therefore,Dirty creates a new corporation,called Clean,and places the assets of the Oregon plant into Clean in exchange for all of Clean's stock.Dirty distributes this stock proportionately to its shareholders in exchange for 40% of their Dirty stock.How will this transaction be treated for tax purposes?

A)As a split-up "Type D" reorganization.
B)As a split-off "Type D" reorganization.
C)As a spin-off "Type D" reorganization.
D)This transaction does not qualify as a reorganization,because Dirty does not have two active lines of business.
E)None of the above.

Question 72

In which type of reorganization could bonds and other liabilities be exchanged for stock and not be treated as boot?

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

Question 73

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)LouderCo 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.

Question 74

Which of the following statements is true 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 NOL and capital loss carryovers,then built-in losses,and lastly to credit carryovers.
B)If the maximum allowable by the § 382 limitation cannot be used in the current year due to not enough income earned by the successor corporation,the unused portion can be carried back to years that have occurred since the reorganization.
C)None of the loss tax attributes will be available to the successor if the continuity of interest requirement is not met for at least two years.
D)The IRS can apply § 269 to allow loss carryovers when there is no tax evasion motive in acquiring a loss corporation.
E)None of the above statements is true.

Question 75

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 76

Vintage Corporation has four shareholders: Robin,Quinton,Paula,and Orvil.Paula and Orvil started the business 10 years ago,and Robin and Quinton bought their stock 6 years ago.Vintage's historical business is buying and selling antiques.When Robin and Quinton joined Vintage,it added a new business,trading in collectibles. Lately,there has been a disagreement about the future of Vintage.Orvil and Quinton are not interested in collectibles,but Robin and Paula enjoy this part of the business.To resolve this issue,Paula 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 of Vintage.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 77

In which type of divisive corporate reorganization do the shareholders receive stock in another corporation and relinquish a percentage of their stock in the original corporation?

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

Question 78

ScottishCo is owned by Gordon Bryson and his four nieces and nephews.Gordon owns all the voting stock.He wants to relinquish control;accordingly,ScottishCo redeems all of Gordon's voting common stock and issues him preferred stock and $50,000 in bonds.The nonvoting preferred shares owned by the nieces and nephew are exchanged for voting common stock.Which of the following statements is correct?

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

Question 79

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 80

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.