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 that 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?

Question

Quizplus · Accepted Answer

This transaction does not result in taxable income to Javanese simply because its liabilities exceed its basis in the assets transferred. The general business credits of Javanese do not directly transfer to Burmese in a manner that allows for a simple annual limit calculation like $4,200 without more context on limitations and carryforwards. The specific reorganization type (e.g., "Type A" or "Type C") depends on various factors, including whether it's a statutory merger or consolidation ("Type A") or a stock-for-assets acquisition ("Type C"), and the details provided do not definitively categorize it as one or the other without further information on the structure of the transaction.

Burmese Corporation Is Interested in Acquiring Javanese Corporation by Transferring