Crested Serpent Eagle (CSE) Corporation is owned by Lin Yuan and Yu Chi. It has been in the manufacturing and lumber businesses for 20 years. For liability protection, the manufacturing assets of CSE are transferred to Serpent Corporation for all of its stock. This stock is distributed to Lin Yuan in exchange for her CSE stock. The lumber assets are transferred to Eagle Corporation for all of its stock. Yu Chi receives the Eagle stock in exchange for his CSE shares. CSE then terminates.
A)The transaction qualifies as a spin-off "Type D" reorganization.
B)The transaction qualifies as a split-off "Type D" reorganization.
C)The transaction qualifies as a split-up "Type D" reorganization.
D)The transaction is taxable.

Question

Quizplus · Accepted Answer

The transaction qualifies as a split-up "Type D" reorganization because CSE is splitting its assets and distributing the stock of two newly formed corporations to its shareholders in exchange for their CSE shares. The transaction is not taxable because it meets the requirements for a Type D reorganization, which allows for tax-free treatment if certain conditions are met. The manufacturing assets being transferred to Serpent Corporation and lumber assets being transferred to Eagle Corporation for all of their stock qualifies as a split-up.

Crested Serpent Eagle (CSE) Corporation Is Owned by Lin Yuan