Question 1

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 if it sold all its assets to a new corporation in exchange for its stock. As a result, the tax attributes of the target corporation are lost, including net operating losses, tax credits, and capital loss carryovers. However, the new corporation acquires a stepped-up basis in the acquired assets, which can result in future tax benefits.

Question 2

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

In a taxable asset acquisition,the purchaser's basis for the assets is their acquisition cost .In this instance,the acquisition cost is $600,000 cash plus the assumption of $250,000 in liabilities for a total of $850,000.

Question 3

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

Accepted Answer

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

Question 4

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 5

Identify which of the following statements is true.

Accepted Answer

When the acquiring corporation makes the Sec. 338 election, the target corporation is treated as a new corporation for tax purposes. This includes a new tax year starting on the first day of the deemed liquidation period. Additionally, the Sec. 338 election may result in a deemed sale of the target corporation's assets, which can trigger tax consequences for the target corporation. However, tax attributes of the target corporation may carry over to the new corporation if certain requirements are met.

Question 6

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 7

Identify which of the following statements is true.

Accepted Answer

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

Question 8

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

C) A Sec. 338 election must be made not later than the fifteenth day of the ninth month after the month in which the acquisition date (November 20, of this year) occurs.

Question 9

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 at least 80% of the target corporation's stock be owned.

Question 10

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 assets of the company being acquired, and not its liabilities. Any unknown or contingent liabilities remain the responsibility of the seller. This is one of the main differences between an asset acquisition and a stock acquisition, where the purchaser acquires both the assets and liabilities of the company being acquired.

Question 11

Identify which of the following statements is false.

Accepted Answer

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

Question 12

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 13

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

Accepted Answer

Class III includes assets such as copyrights, patents, trademarks, and customer-based intangibles, but not covenants not to compete or similar restrictions on trade.

Question 14

Identify which of the following statements is false.

Accepted Answer

A taxable acquisition of a target corporation's assets results in the recognition of gain or loss on the disposition of each individual asset, not nonrecognition.

Question 15

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

The answer of Pacific Corporation acquires 80% of the stock...

Question 16

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 17

Identify which of the following statements is false.

Accepted Answer

An acquiring corporation in a taxable acquisition transaction may choose to acquire either all of the assets and liabilities of the target corporation or only a portion of them. This is known as a "partial acquisition," and is common in situations where the acquiring corporation is only interested in a particular division or subsidiary of the target corporation.

Question 18

Identify which of the following statements is true.

Accepted Answer

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

Question 19

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

C) Purchaser's basis for stock is its cost The target corporation's basis in its assets or the amount of its liabilities are not relevant in a cash purchase of stock.

Question 20

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...

Quiz 7: Corporate Acquisitions and Reorganizations

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

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?

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.

Identify which of the following statements is true.

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

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

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

Identify which of the following statements is false.

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

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

Identify which of the following statements is false.

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 false.

Identify which of the following statements is true.