Tiger Corporation is interested in acquiring most of Buffalo Corporation's assets.Buffalo's assets are currently valued at $700,000.However,there is one division of Buffalo in which Tiger is not interested.Since Buffalo wants the Tiger takeover to occur,it sells the line for its net fair market value of $250,000 ($350,000 assets less $100,000 in liabilities).Buffalo then transfers its remaining assets to Tiger for $450,000 in common voting stock.

Question

Quizplus · Accepted Answer

The step transaction doctrine applies to this transaction and accordingly requires the sale of the Buffalo line to be considered as part of the reorganization.The requirements of a "Type A" reorganization are not met,because all of Buffalo's liabilities are not acquired due to the sale.In addition,Tiger does not acquire at least 80% of the assets ($450,000/$700,000 < 80%),which is a requirement of a Type C.

Tiger Corporation Is Interested in Acquiring Most of Buffalo Corporation's