Question 1

Target sells assets not desired by Acquirer before entering into a reorganization transaction with Acquirer. In which reorganization will the step transaction doctrine not apply to the sale by Target?

Accepted Answer

A)   "Type A" reorganization.
B)   "Type B" reorganization.
C)   "Type C" reorganization.
D)   Only "Type A" and "Type C".E) All of the above
F) B) and C)

Question 2

Which of the following statements is false?

Accepted Answer

A)   A "Type B" reorganization is most likely to run afoul of the continuity of interest doctrine because the target remains a separate corporation.
B)   Liabilities are problematic for "Type A" and "Type C" reorganizations.
C)   The step transaction doctrine can be problematic in "Type B" and "Type C" reorganizations.
D)   "Type E" and "Type F" are not likely to be subject to the § 382 limitation.E) A) and C)
F) A) and B)

Question 3

In a divisive "Type D" reorganization, the distributing corporation obtains control of the new target by exchanging some of its assets for at least 80% of the new target's outstanding stock.

Accepted Answer

A) True 
 B)False

Question 4

Federal bankruptcy legislation created the reorganization. To qualify for this type of reorganization, the corporation must be before the reorganization.

Accepted Answer

The answer of Federal bankruptcy legislation created the reorganization. To...

Question 5

Saucer Corporation has a value of $800,000, basis in its assets of $670,000, and liabilities of $200,000. Cup Corporation acquires 90% of Saucer's assets by exchanging $550,000 of its voting stock, $20,000 cash, and assuming $150,000 of Saucer's liabilities. The remaining 10% of Saucer's assets not acquired is $80,000 cash. Saucer distributes the Cup stock, $100,000 in cash and associated $50,000 in liabilities to its shareholder, Sam, in exchange for his Saucer stock basis $560,000) . Saucer then liquidates. How will this transaction be treated for tax purposes?

Accepted Answer

A)   As a "Type A" reorganization. Sam recognizes $50,000 gain and Saucer recognizes $20,000 gain.
B)   As a "Type A" reorganization. Sam recognizes $100,000 gain and Saucer recognizes $120,000 gain.
C)   As a "Type C" reorganization. Sam recognizes $50,000 gain and Saucer recognizes $20,000 gain.
D)   As a "Type C" reorganization. Sam recognizes $40,000 gain and Saucer recognizes no gain.
E)   As a taxable transaction.F) None of the above
G) A) and E)

Question 6

Changing from an S corporation to a C corporation is a reorganization.

Accepted Answer

The answer of Changing from an S corporation to a...

Question 7

Liabilities are problematic only in the reorganization when the
corporation transfers other property boot) as well as stock to the target.

Accepted Answer

The answer of Liabilities are problematic only in the reorganization...

Question 8

Long Corporation has $500,000 of assets with a basis of $350,000 and liabilities of $125,000. ShortCo acquires Long's assets and $100,000 of liabilities by exchanging $400,000 of its voting stock. Long distributes the ShortCo stock and remaining liabilities to its shareholder in exchange for the shareholder's Long stock with a basis of $275,000 and then it liquidates. Which, if any, of the following statements is correct?

Accepted Answer

A)   This restructuring qualifies as a "Type A" reorganization with no recognized gains or losses.
B)   This restructuring qualifies as a "Type C" reorganization with no recognized gains or losses.
C)   This qualifies as either a "Type A" or "Type C" and the shareholder has a $25,000 recognized gain.
D)   The restructuring is taxable because liabilities cannot be distributed to shareholders in a tax-free reorganization.
E)   None of these statements is correct.F) A) and C)
G) A) and E)

Question 9

For a corporate restructuring to qualify as a tax-free reorganization, the step transaction doctrine must apply.

Accepted Answer

A) True 
 B)False

Question 10

Match the following items with the statements that follow. Terms may be used more than once.
-Tax avoidance is not enough; transaction must have a corporate economic consequence.

Accepted Answer

A)  Boot
B)  Business credits
C)  Capital gain
D)  Continuity of business enterprise
E)  Continuity of interestF) DividendG) Discount rateH) Earnings and profitsI) Federal long-term tax-exempt rateJ) Liability assumptionK) Ordinary gainL) Ownership changeM) Section 382 limitationN) Sound business purposeO) Step transactionP) A) and N)
Q) E) and N)

Question 11

Spoonbill Corporation has assets with a FMV of $800,000 and adjusted basis of $600,000. It has been manufacturing engineering equipment and laboratory tools for the last eight years. Spoonbill forms a new corporation, Roseate Corporation, by acquiring all of its stock in exchange for the laboratory tool division of Spoonbill. Each of the Spoonbill shareholders receives 1 share of Roseate stock for each 50 shares they own in Spoonbill. How will this transaction be treated for Federal income tax purposes?

Accepted Answer

A)   As a split-off "Type D" reorganization.
B)   As a spin-off "Type D" reorganization.
C)   As a spit-up "Type D" reorganization.
D)   This transaction is treated as a stock dividend.E) C) and D)
F) B) and D)

Question 12

In a "Type A" merger, the acquiring corporation may select which liabilities of the target it assumes, but in a "Type A" consolidation, all the liabilities known and contingent) must be assumed by the new corporation.

Accepted Answer

A) True 
 B)False

Question 13

Obtaining a favorable letter ruling from the IRS can ensure the desired tax treatment for parties contemplating a corporate reorganization.

Accepted Answer

A) True 
 B)False

Question 14

The "Type B" reorganization requires a continuity of business interest. Therefore, the acquiring corporation must obtain at least 40% of the target corporation's stock through the reorganization.

Accepted Answer

A) True 
 B)False

Question 15

Peony owns all of the Garden Corporation common stock with a basis of $400,000 and a value of $900,000. Her grandchildren own nonvoting preferred stock with a basis and value of $540,000 that pays a 6% annual dividend. Peony would like to transfer her ownership of Garden to her grandchildren but retain a guaranteed income from Garden. What would be the most tax effective method of making this transfer?

Accepted Answer

A)   Peony sells her common stock to her grandchildren. They pay for the stock on the installment method over 20 years with a 6% interest on the unpaid balance.
B)   Garden redeems all of Peony's common stock and issues her a 20-year bond for $900,000 that pays 6% interest.
C)   Garden redeems Peony's common stock and issues her preferred stock with a 6% yearly dividend rate. Garden exchanges the grandchildren's preferred stock for common stock.
D)   Peony exchanges 60% of her common stock with her grandchildren for all of their preferred stock. The grandchildren then have control and Peony retains 40% of the common stock.E) None of the above
F) A) and B)

Question 16

Besides the statutory requirements for tax-free treatment for corporate reorganizations, there are several judicial requirements. Which of the following is not a judicial requirement for corporate reorganizations?

Accepted Answer

A)   The ownership change doctrine should be met.
B)   The continuity of business enterprise test must be met.
C)   There must be a sound business purpose for the restructuring.
D)   The step transaction doctrine should not apply.
E)   All of these items are judicial requirements for reorganizations.F) A) and E)
G) B) and E)

Question 17

Match the following items with the statements that follow. Terms may be used more than once.
-Any asset other than stock or securities received by the target shareholders.

Accepted Answer

A)  Boot
B)  Business credits
C)  Capital gain
D)  Continuity of business enterprise
E)  Continuity of interestF) DividendG) Discount rateH) Earnings and profitsI) Federal long-term tax-exempt rateJ) Liability assumptionK) Ordinary gainL) Ownership changeM) Section 382 limitationN) Sound business purposeO) Step transactionP) A) and O)
Q) None of the above

Question 18

Flower Corporation has two divisions that it has operated for the last 10 years: Gerbera with a value of $806,000 basis $400,000)  and Daisy with a value of $744,000 basis 800,000) . While Gerbera is profitable, Daisy continues to incur losses and created a $350,000 NOL for Flower two years ago. Flower has decided this year it would like to become two corporations: Gerbera and Daisy. Which of the following is the best method for Flower to become two corporations?

Accepted Answer

A)   Under a § 351 creation of a corporation, Flower transfers all of the Daisy division assets and the NOL to the new corporation Daisy)  for all of its stock. Flower retains the stock and Daisy becomes a subsidiary without limitations on its NOL use.
B)   Using a split-off, Flower transfers the Gerbera division assets to the new corporation Gerbera)  for all of its stock. Flower distributes all of the Gerbera stock to its shareholders in exchange for 52% of their Flower stock. Flower retains the Daisy division and NOL without limitations on its use.
C)   Using a spin-off, Flower transfers the Daisy division assets to the new corporation Daisy)  for all of its stock. Flower distributes all of the Daisy stock to its shareholders. Flower retains the Gerbera division and NOL without limitations on its use.
D)   Using a split-up, Flower transfers the Daisy division assets to the new corporation Daisy)  for all of its stock and transfers the Gerbera division assets to the new corporation Gerbera)  for all of its stock. Flower distributes all of the Daisy and Gerbera stock to its shareholders in exchange for 100% of their Flower stock, and Flower then terminates. The Daisy division retains the NOL without limitations on its use.E) A) and B)
F) None of the above

Question 19

All the following should apply to a tax favored corporate restructuring except:

Accepted Answer

A)   The reorganization is planned to be accomplished over five months.
B)   Transactions to remove any barriers occur within three months of the restructuring.
C)   The purpose of the restructuring is to ensure a supply of raw materials.
D)   The acquired equipment and machinery of the target will be utilized to manufacture the products of the acquiring corporation.
E)   All of these statements are true.F) A) and B)
G) All of the above

Question 20

The tax treatment of the parties involved in a tax-free reorganization almost exactly parallels the treatment under the like-kind exchange provisions. When is received, gain may be
____________________, and losses are _.

Accepted Answer

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Exam 7: Corporations: Reorganizations

All the following should apply to a tax favored corporate restructuring except:

Correct Answer
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Obtaining a favorable letter ruling from the IRS can ensure the desired tax treatment for parties contemplating a corporate reorganization.

Correct Answer
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Match the following items with the statements that follow. Terms may be used more than once. -Tax avoidance is not enough; transaction must have a corporate economic consequence.

Correct Answer
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Correct Answer
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Besides the statutory requirements for tax-free treatment for corporate reorganizations, there are several judicial requirements. Which of the following is not a judicial requirement for corporate reorganizations?

Correct Answer
verified

In a divisive "Type D" reorganization, the distributing corporation obtains control of the new target by exchanging some of its assets for at least 80% of the new target's outstanding stock.

Correct Answer
verified

Changing from an S corporation to a C corporation is a reorganization.

Correct Answer
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Correct Answer
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The tax treatment of the parties involved in a tax-free reorganization almost exactly parallels the treatment under the like-kind exchange provisions. When is received, gain may be ____________________, and losses are _.

Correct Answer
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boot, reco...
View Answer

Liabilities are problematic only in the reorganization when the corporation transfers other property boot) as well as stock to the target.

Correct Answer
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The "Type B" reorganization requires a continuity of business interest. Therefore, the acquiring corporation must obtain at least 40% of the target corporation's stock through the reorganization.

Correct Answer
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Match the following items with the statements that follow. Terms may be used more than once. -Any asset other than stock or securities received by the target shareholders.

Correct Answer
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In a "Type A" merger, the acquiring corporation may select which liabilities of the target it assumes, but in a "Type A" consolidation, all the liabilities known and contingent) must be assumed by the new corporation.

Correct Answer
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Correct Answer
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Which of the following statements is false?

Correct Answer
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Federal bankruptcy legislation created the reorganization. To qualify for this type of reorganization, the corporation must be before the reorganization.

Correct Answer
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Correct Answer
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Correct Answer
verified

Target sells assets not desired by Acquirer before entering into a reorganization transaction with Acquirer. In which reorganization will the step transaction doctrine not apply to the sale by Target?

Correct Answer
verified

For a corporate restructuring to qualify as a tax-free reorganization, the step transaction doctrine must apply.

Correct Answer
verified

Exam 7: Corporations: Reorganizations

All the following should apply to a tax favored corporate restructuring except:

Correct AnswerverifiedShow Answer

Obtaining a favorable letter ruling from the IRS can ensure the desired tax treatment for parties contemplating a corporate reorganization.

Correct AnswerverifiedShow Answer

Match the following items with the statements that follow. Terms may be used more than once. -Tax avoidance is not enough; transaction must have a corporate economic consequence.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Besides the statutory requirements for tax-free treatment for corporate reorganizations, there are several judicial requirements. Which of the following is not a judicial requirement for corporate reorganizations?

Correct AnswerverifiedShow Answer

In a divisive "Type D" reorganization, the distributing corporation obtains control of the new target by exchanging some of its assets for at least 80% of the new target's outstanding stock.

Correct AnswerverifiedShow Answer

Changing from an S corporation to a C corporation is a reorganization.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The tax treatment of the parties involved in a tax-free reorganization almost exactly parallels the treatment under the like-kind exchange provisions. When is received, gain may be ____________________, and losses are _.

Correct Answerverifiedboot, reco...View AnswerShow Answer

Liabilities are problematic only in the reorganization when the corporation transfers other property boot) as well as stock to the target.

Correct AnswerverifiedShow Answer

The "Type B" reorganization requires a continuity of business interest. Therefore, the acquiring corporation must obtain at least 40% of the target corporation's stock through the reorganization.

Correct AnswerverifiedShow Answer

Match the following items with the statements that follow. Terms may be used more than once. -Any asset other than stock or securities received by the target shareholders.

Correct AnswerverifiedShow Answer

In a "Type A" merger, the acquiring corporation may select which liabilities of the target it assumes, but in a "Type A" consolidation, all the liabilities known and contingent) must be assumed by the new corporation.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Federal bankruptcy legislation created the reorganization. To qualify for this type of reorganization, the corporation must be before the reorganization.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Target sells assets not desired by Acquirer before entering into a reorganization transaction with Acquirer. In which reorganization will the step transaction doctrine not apply to the sale by Target?

Correct AnswerverifiedShow Answer

For a corporate restructuring to qualify as a tax-free reorganization, the step transaction doctrine must apply.

Correct AnswerverifiedShow Answer

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