Question 1

In a taxable asset acquisition,the purchaser does not acquire unknown and contingent liabilities.

Accepted Answer

In a taxable asset acquisition, the purchaser acquires only the known and existing liabilities of the target company, and the unknown and contingent liabilities remain with the selling company.

Question 2

In a nontaxable reorganization,the holding period for the stock received by the target shareholders includes the holding period of the stock surrendered.

Accepted Answer

This is known as the "carryover basis" rule, where the shareholder's holding period for the new stock received in a nontaxable reorganization includes the holding period of the stock surrendered.

Question 3

Identify which of the following statements is true.

Accepted Answer

A Sec.338 election treats the target corporation as a new corporation for many purposes, including tax purposes. Therefore, statement A is true. Statement B is false, as the new corporation is not required to adopt the old corporation's tax year. Statement C is also false, as some tax attributes of the target corporation may be lost when the election is made.

Question 4

In a nontaxable reorganization,the acquiring corporation has a holding period for the acquired assets that begins on the day after the transaction date.

Accepted Answer

In a nontaxable reorganization, the acquiring corporation's holding period for the acquired assets includes the period during which the assets were held by the transferor, effectively backdating the start of the holding period to before the transaction date.

Question 5

In a nontaxable reorganization,shareholders of the target corporation recognize gain or loss.

Accepted Answer

In a nontaxable reorganization, shareholders of the target corporation generally do not recognize gain or loss on the exchange of their shares for those of the acquiring corporation, as long as the transaction meets specific requirements set by the IRS.

Question 6

Which of the following definitions of Sec.338 property classes is not correct?

Accepted Answer

Class III includes non-depreciable intangible property, such as goodwill, covenants not to compete and similar restrictions on trade.

Question 7

Identify which of the following statements is false.

Accepted Answer

In a taxable acquisition transaction, an acquiring corporation has the option to acquire either all or only a portion of the assets and liabilities of the target corporation.

Question 8

When gain is realized by a target corporation from disposing of its assets in a tax-free reorganization,the gain is

Accepted Answer

When a target corporation realizes gain from disposing of its assets in a tax-free reorganization and receives any boot (cash or other assets), the gain is recognized to the extent of the boot received and retained. However, if the boot is immediately distributed to the shareholders, then the gain is not recognized.

Question 9

Taxable acquisition transactions can either be a purchase of assets or a purchase of stock.

Accepted Answer

Taxable acquisition transactions can involve either the purchase of assets or the purchase of stock. In an asset acquisition, the buyer purchases specific assets of the target company, while in a stock acquisition, the buyer purchases the entire ownership of the target company, including its assets and liabilities. Both types of acquisitions can have tax implications for both the buyer and seller.

Question 10

Identify which of the following statements is true.

Accepted Answer

The answer of Identify which of the following statements is...

Question 11

Identify which of the following statements is true.

Accepted Answer

The answer of Identify which of the following statements is...

Question 12

Tax attributes of the target corporation are lost when a Sec.338 deemed liquidation election is made.

Accepted Answer

When a Sec.338 deemed liquidation election is made, the tax attributes of the target corporation are lost, including NOL carryovers, general business tax credit carryovers, foreign tax credit carryovers, and capital loss carryovers. Instead, the target corporation is deemed to have sold all of its assets and liabilities to a new corporation, resulting in a new tax basis for the assets and liabilities.

Question 13

Identify which of the following statements is false.

Accepted Answer

The answer of Identify which of the following statements is...

Question 14

Identify which of the following statements is true.

Accepted Answer

The residual method, as specified under IRC Section 338, is used to allocate the total basis of the target corporation's assets to the individual assets following a Sec. 338 election. This method prioritizes the allocation to certain assets based on their class, ensuring that the purchase price (adjusted for liabilities assumed) is properly distributed among the target's assets.

Question 15

Identify which of the following statements is false.

Accepted Answer

A taxable acquisition of a target corporation's assets does not result in the nonrecognition of gain or loss on the disposition of each individual asset. Each asset is still subject to its own gain or loss recognition rules.

Question 16

The Sec.338 deemed sale rules require that 70% of the target corporation's stock be owned.

Accepted Answer

The Sec. 338 deemed sale rules require that a purchasing corporation acquire at least 80% of the target corporation's stock, by vote and value, within a 12-month period.

Question 17

Axle Corporation acquires 100% of Drexel Corporation's stock from Drexel's shareholders for $500,000 cash.Drexel Corporation has assets with a $600,000 adjusted basis and an $800,000 FMV.The assets are subject to $200,000 in liabilities.Drexel Corporation shareholders purchased their stock eight years ago for $300,000.Axle Corporation's basis in the Drexel Corporation stock is

Accepted Answer

Axle Corporation's basis in the Drexel Corporation stock will be the amount paid for the stock ($500,000). The adjusted basis and FMV of Drexel Corporation's assets, as well as the shareholders' purchase price of the stock, are not relevant to Axle Corporation's basis in the stock.

Question 18

Jersey Corporation purchased 50% of Target Corporation's single class of stock on June 1 of this year.They purchased an additional 40% on November 20 of this year.The Sec.338 election must be made on or before

Accepted Answer

The Sec. 338 election allows a purchasing corporation to treat a qualified stock purchase as an asset acquisition for tax purposes. The election must be made by the 15th day of the 9th month following the month in which the acquisition occurred. Since the additional purchase that resulted in an 80% ownership occurred on November 20, the deadline for making the Sec. 338 election would be August 15 of the following year.

Question 19

Melon Corporation makes its first purchase of 30% of Hill Corporation stock on July 31 of this year.Melon Corporation uses a calendar tax year.To use the Sec.338 election,Melon Corporation must purchase

Accepted Answer

The answer of Melon Corporation makes its first purchase of...

Question 20

A stock acquisition that is not treated as a purchase for purposes of meeting the Sec.338 rules is

Accepted Answer

All of the options listed (A, B, C) describe situations where the stock acquisition is not treated as a purchase for the purposes of meeting the Section 338 rules. Section 338 allows a purchasing corporation to treat the stock purchase of another company as an asset acquisition under certain conditions, but these conditions exclude stock acquisitions where the basis is determined by reference to the previous owner's basis, stock acquired from a decedent, and stock acquired in a tax-free reorganization.

Quiz 7: Corporate Acquisitions and Reorganizations

In a taxable asset acquisition,the purchaser does not acquire unknown and contingent liabilities.

In a nontaxable reorganization,the holding period for the stock received by the target shareholders includes the holding period of the stock surrendered.

Identify which of the following statements is true.

In a nontaxable reorganization,the acquiring corporation has a holding period for the acquired assets that begins on the day after the transaction date.

In a nontaxable reorganization,shareholders of the target corporation recognize gain or loss.

Which of the following definitions of Sec.338 property classes is not correct?

Identify which of the following statements is false.

When gain is realized by a target corporation from disposing of its assets in a tax-free reorganization,the gain is

Taxable acquisition transactions can either be a purchase of assets or a purchase of stock.

Identify which of the following statements is true.

Identify which of the following statements is true.

Tax attributes of the target corporation are lost when a Sec.338 deemed liquidation election is made.

Identify which of the following statements is false.

Identify which of the following statements is true.

Identify which of the following statements is false.

The Sec.338 deemed sale rules require that 70% of the target corporation's stock be owned.

Jersey Corporation purchased 50% of Target Corporation's single class of stock on June 1 of this year.They purchased an additional 40% on November 20 of this year.The Sec.338 election must be made on or before

Melon Corporation makes its first purchase of 30% of Hill Corporation stock on July 31 of this year.Melon Corporation uses a calendar tax year.To use the Sec.338 election,Melon Corporation must purchase

A stock acquisition that is not treated as a purchase for purposes of meeting the Sec.338 rules is