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Exam 7: Corporations: Reorganizations

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Question 1

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While a "Type B" reorganization requires that voting stock be used by the acquiring corporation, in a "Type A," the acquiring can use common or preferred stock and still have the restructuring meet the qualifications of § 368.

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B) False

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Question 2

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Match the following items with the statements below. Terms may be used more than once. a. Boot b. Business credits c. Capital gain d. Continuity of business enterprise e. Continuity of interest f. Dividend g. Discount rate h. Earnings and profits i. Equity structure shift j. Federal long-term tax-exempt rate k. Liability assumption l. Ordinary gain m. Owner shift n. Ownership change o. Section 382 limitation p. Sound business purpose q. Step transaction -A 50 percentage-point change in ownership that occurs because of tax-free reorganization.

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Question 3

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The application of the § 382 limitation to credits requires determining the income tax reduction benefit when applying the § 382 limitation to deductions.

The amount of gain recognized by a shareholder in a corporate reorganization is based on the shareholder's proportionate share of E & P.

Discuss the treatment of accumulated earnings and profits (E & P) in a corporate reorganization when both corporations have positive E & P and when the target corporation has a negative E & P.

Match the following items with the statements below. Terms may be used more than once. a. Boot b. Business credits c. Capital gain d. Continuity of business enterprise e. Continuity of interest f. Dividend g. Discount rate h. Earnings and profits i. Equity structure shift j. Federal long-term tax-exempt rate k. Liability assumption l. Ordinary gain m. Owner shift n. Ownership change o. Section 382 limitation p. Sound business purpose q. Step transaction -Rate used to determine the § 382 limitation.

When applying the § 382 limitation to deductible losses and credits, the § 382 limit first is applied to capital loss carryovers, and then to NOLs.

What type of reorganization is affected in each of the following independent transactions? a. "A" reorganization, merger b. "A" reorganization, consolidation c. "B" reorganization d. "C" reorganization e. Acquisitive "D" reorganization f. "D" reorganization, spin­off g. "D" reorganization, split­off h. "D" reorganization, split­up i. "E" reorganization j. "F" reorganization k. "G" reorganization l. Taxable transaction -Flower Corporation is owned by Carry and Kim. All of Carry's stock (value of $200,000) is exchanged for $200,000 in bonds. Kim exchanges no stock in the transaction.

In a reorganization, each corporation must obtain the approval of the majority of its shareholders. The acquiring corporation must assume at least percent of the target's liabilities.

In a(n) reorganization, the acquiring corporation transfers its assets to the target for at least ____________________ percent of the target stock.

If the acquiring corporation purchased 25% of target stock for cash ten years ago, the acquiring corporation can still meet the "Type C" reorganization requirement that 80% of the target's assets be acquired with stock.

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

In a "Type B" reorganization, the acquiring corporation obtains control by exchanging common and preferred stock in the same percentages as the target's outstanding common and preferred stock.

Cotinga Corporation is acquiring Petrel Corporation through a "Type C" reorganization by exchanging 20% of its voting stock and $50,000 for all of Petrel's assets (value of $800,000 and basis of $600,000) and liabilities ($100,000). Jerrika owns 48% of Petrel (basis $270,000), and Allen owns the remaining 52% (basis $380,000). They exchange their stock in Petrel for their proportionate shares of the Cotinga stock and cash. What is the value of the Cotinga stock received by Jerrika and Allen? What are the amounts of gains/losses each recognizes due to the reorganization? What is Jerrika's and Allen's basis in the Cotinga stock?

is other property received along with stock in a restructuring falling under § 368. If the shareholders receive the other property, it can be taxed as and/or ____________________.

If the successor corporation's current­year taxable income is not sufficient to utilize the full § 382 limitation on carryovers, the amount not utilized is carried forward and added to the next year's limitation.

Loss Corporation carries over an NOL, business credits, built­in ordinary losses, and capital losses. The § 382 limitation is applied to these carryover attributes in the following order: ____________________, ____________________, ____________________, ____________________.

The doctrine treats several transactions as if they were one transaction when they are all integrated. The doctrine ensures that the restructuring has a purpose beyond tax avoidance or evasion.

An equity structure shift occurs when a tax-free reorganization causes an ownership change of percentage-points for any common shareholders owning at least 5%. A sale or issuance of stock can cause a(n) ____________________ to take place.

When the § 382 limitation is evoked, the acquiring corporation is limited in its use of the tax loss carryover of the loss corporation. The limitation is based on the net present value of the loss corporation using the Federal long-term discount rate.