Which of the following statements best describes the application of the continuity of enterprise principle to a Type A tax-deferred reorganization?

Question

Quizplus · Accepted Answer

The continuity of business enterprise (COBE) principle must be satisfied only for the target corporation in a Type A tax-deferred reorganization. This means that the target corporation must continue to conduct its historic business or use its historic business assets after the transaction. The acquirer does not have to continue the historic business of the target corporation, but it must use a significant portion of the target corporation's assets in a business that is not substantially different from the historic business. The COBE test is one of the requirements for a transaction to qualify as a tax-deferred reorganization under Section 368 of the Internal Revenue Code.

Which of the Following Statements Best Describes the Application of the Continuity