Question 1

Identify which of the following statements is false.

Accepted Answer

B

Question 2

Pacific Corporation acquires 80% of the stock of Jackson Corporation for $3,000,000 in the current year. Jackson's assets have a basis of $2,000,000 and its liabilities are $800,000. The assets are worth $3,500,000. What gain is recognized by Jackson Corporation on the deemed sale of its assets if a Sec. 338 election is made?

Accepted Answer

FMV of $3,500,000 less basis of $2,000,000 equals a recognized gain of $1,500,000.

Question 3

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

Accepted Answer

Taxable acquisition transactions can be structured as either a purchase of assets or a purchase of stock. In a purchase of assets, the buyer acquires specific assets of the target company, while in a purchase of stock, the buyer acquires ownership of the entire company through the purchase of its stock. Both types of transactions can be subject to taxation.

Question 4

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

Accepted Answer

In a taxable asset acquisition, the buyer typically only acquires the specific assets and liabilities that are explicitly agreed upon in the purchase agreement, leaving unknown and contingent liabilities with the seller.

Question 5

Identify which of the following statements is true.

Accepted Answer

In a taxable stock acquisition, the basis of the target corporation's assets does not change. The basis of the assets remains the same as it was before the acquisition.

Question 6

Identify which of the following statements is true.

Accepted Answer

The Sec. 338 deemed liquidation rules require that 80% of the target corporation's stock be purchased, not 100%.

Question 7

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 8

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 target corporation is treated as having sold all of its assets to a new corporation for their fair market value. As a result, the tax attributes of the target corporation, such as net operating losses and tax credits, are lost.

Question 9

Identify which of the following statements is false.

Accepted Answer

In a taxable acquisition, the acquiring corporation may purchase only select assets and assume select liabilities of the target corporation, rather than acquiring all of them.

Question 10

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 11

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.

Question 12

Identify which of the following statements is true.

Accepted Answer

Option A is correct as a Sec. 338 election results in the target corporation being treated as a new corporation for many purposes, including for tax purposes. Option B is incorrect as a Sec. 338 election does not require the adoption of the old target corporation's tax year; instead, the acquiring corporation can choose to adopt its own tax year. Option C is also incorrect as a Sec. 338 election generally results in the loss of certain tax attributes of the target corporation, such as net operating losses and tax credits. Therefore, option D is also incorrect as it suggests that all options are false.

Question 13

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 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. Rather, each asset is treated as if it has been sold separately, and gain or loss is recognized on each.

Question 16

Brown Corporation has assets with a $650,000 basis and an $800,000 FMV. The assets are subject to $250,000 in liabilities. Clark Corporation acquires all of Brown's assets and liabilities for $600,000 in cash. Brown Corporation then liquidates. What is Clark Corporation's basis in the acquired assets?

Accepted Answer

The answer of Brown Corporation has assets with a $650,000...

Question 17

Parent Corporation purchases all of Target Corporation's stock for $200,000 and makes a deemed liquidation election. Target Corporation has Class I assets with an adjusted basis of $55,000 and an FMV of $55,000; Class II assets with an adjusted basis of $40,000 and an FMV of $60,000; and Class V assets with an adjusted basis of $70,000 and an FMV of $100,000. The Class V assets are subject to a $20,000 liability. Assume a 34% corporate tax rate. What is the adjusted grossed-up basis of Target Corporation's stock?

Accepted Answer

The answer of Parent Corporation purchases all of Target Corporation's...

Question 18

Dreyer Corporation purchased 5% of Willy Corporation's stock five years ago for $100,000. Dreyer then decides to purchase an additional 80% of the Willy stock for $1,000,000 on April 15 of the current year. On the acquisition date, Willy Corporation's liabilities are $150,000. A $300,000 tax liability is incurred by Willy on the Sec. 338 deemed sale. What is the total basis of Willy Corporation's assets for Sec. 338 basis allocation purposes?

Accepted Answer

The answer of Dreyer Corporation purchased 5% of Willy Corporation's...

Question 19

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

Accepted Answer

Class III typically includes assets that are depreciable tangible personal property, not intangible assets like covenants not to compete. These would fall under a different classification.

Question 20

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.

Quiz 7: Corporate Acquisitions and Reorganizations

Identify which of the following statements is false.

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

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

Identify which of the following statements is true.

Identify which of the following statements is true.

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

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.

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

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

Identify which of the following statements is true.

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

Identify which of the following statements is true.

Identify which of the following statements is false.

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