Question 1

Ula purchased stock in Purple, Inc., 6 years ago for $150,000. Purple has assets with a value of $225,000 ($175,000 basis)  and liabilities of $60,000. Purple transfers $200,000 of assets and all of its liabilities to White Corporation in exchange for White common stock. Purple distributes the White stock and its $25,000 remaining asset (cash)  to Ula in exchange for all of her Purple stock. Purple then liquidates. How is this transaction treated for tax purposes?

Accepted Answer

A)   Ula recognizes a $15,000 gain on the exchange.
B)   Ula recognizes a $25,000 gain on the exchange.
C)   Ula recognizes a $25,000 gain and Purple recognizes a $25,000 gain on the exchange.
D)   Purple recognizes a $50,000 gain on the exchange.E) None of the above
F) A) and D)

Question 2

The Federal income tax treatment of a corporate restructuring is an extension of allowing entities to form without taxation.

Accepted Answer

A) True 
 B)False

Question 3

____________________ 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 ____________________.

Accepted Answer

Boot, divi...

Question 4

Which of the following statements regarding the applicability of the judicial doctrines to a "Type G" reorganization is correct?

Accepted Answer

A)   The continuity of interest doctrine is applied to the creditors rather than the shareholders.
B)   The sound business purpose doctrine does not apply because the restructuring is dictated by state proceedings.
C)   The continuity of business enterprise doctrine does not apply because the transaction is a bankruptcy.
D)   The step transaction doctrine presents a problem, because a "Type G" reorganization make take an extended period of time to complete.
E)   All of the above.F) A) and B)
G) A) and C)

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 of 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 of gain and Saucer recognizes $20,000 gain.
D)   As a "Type C" reorganization. Sam recognizes $40,000 of gain and Saucer recognizes no gain.
E)   As a taxable transaction.F) B) and C)
G) A) and B)

Question 6

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 the above items are judicial requirements for reorganizations.F) A) and D)
G) A) and B)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements regarding "Type B" reorganizations is true?

Accepted Answer

A)   Since a parent-subsidiary relationship is created, the tax attribute carryover limitations are problematic.
B)   The acquisition of liabilities can cause problems when the liabilities of the target are greater than 20% of the total consideration and the acquiring owned target stock prior to the "Type B" reorganization.
C)   The acquisition of common and preferred target stock by the acquiring can be directly from the shareholders or from the target corporation.
D)   The acquiring corporation must distribute the target stock it obtains to its shareholders. The acquiring shareholders do not always have to turn in acquiring stock in exchange for the target stock.
E)   All of the above statements are true.F) None of the above
G) B) and D)

Question 9

Which of the following statements is true concerning all types of tax-free corporate reorganizations?

Accepted Answer

A)   Assets are transferred from one corporation to another.
B)   Stock is exchanged with shareholders.
C)   Liabilities that are assumed when cash is also used as consideration will be treated as boot.
D)   Corporations and shareholders involved in the reorganization will recognize gains but not losses.
E)   None of the above statements is true.F) C) and E)
G) B) and D)

Question 10

The acquiring corporation in a "Type G" reorganization reduces the tax attributes carried over from the bankrupt corporation by the percentage in change in ownership.

Accepted Answer

A) True 
 B)False

Question 11

Bobcat Corporation redeems all of Zed's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash. Zed's basis in his 20% interest in Bobcat is $100,000 and the stock's value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $200,000 and of Van are $75,000. How does Zed treat this transaction for tax purposes?

Accepted Answer

A)   No gain is recognized by Zed in this reorganization.
B)   Zed reports a $50,000 recognized dividend.
C)   Zed reports a $50,000 recognized capital gain.
D)   Zed reports a $40,000 recognized dividend and a $10,000 capital gain.
E)   Not enough information is available to determine proper treatment.F) C) and E)
G) B) and D)

Question 12

Heart Corporation has net assets valued at $1 million and an NOL of $250,000. On December 31 of last year, Heart is acquired by Brain Corporation, a calendar year taxpayer, in a restructuring qualifying as a tax-free reorganization. Heart shareholders receive 45% of Brain's shares in exchange for all of the Heart stock. Assuming that the Federal long-term tax-exempt rate is 5% and Brain's discount factor is 10%, what is the maximum amount that Brain can use of Heart's NOL this year?

Accepted Answer

A)   $12,500
B)   $50,000
C)   $100,000
D)   $250,000
E)   None of the aboveF) A) and B)
G) B) and D)

Question 13

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

Accepted Answer

capital loss, built-...

Question 14

All of the following statements are true about corporate reorganization except:

Accepted Answer

A)   Taxable amounts for shareholders are classified as a dividend or capital gain.
B)   Reorganizations receive treatment similar to corporate formations under § 351.
C)   The transfers of stock to and from shareholders qualify for like-kind exchange treatment.
D)   The value of the stock received by the shareholder less the gain not recognized (postponed)  will equal the shareholder's basis in the stock received.
E)   All of the above statements are true.F) None of the above
G) C) and D)

Question 15

Which of the following statements is true?

Accepted Answer

A)   The dollar amounts involved in reorganizations are generally substantial; thus, it is important that the financial and tax treatment of the reorganization is consistent.
B)   A letter ruling indicates the income tax treatment the IRS will apply to the proposed corporate restructuring transaction.
C)   Careful planning can ensure that all gains recognized by individual shareholders receive beneficial dividend treatment.
D)   ​None of the statements is true.E) B) and D)
F) B) and C)

Question 16

Cuckoo Corporation has just lost a $500,000 product liability suit. Before the lawsuit, its assets were valued at $600,000 (basis of $400,000) , and it had general liabilities of $300,000 and $100,000 of bonds outstanding. It also has a $50,000 capital loss carryover, $10,000 general business credits, and $150,000 NOL. Cuckoo is solely owed by Emmy Lou. A state restructuring creates Turaco as the successor company to Cuckoo. Which of the following statements is false?

Accepted Answer

A)   This transaction qualifies as a "Type G" reorganization.
B)   Emmy Lou may not receive any stock in Turaco in the restructuring.
C)   When Turaco reduces Cuckoo's tax attributes for the cancellation of debt income relief, it first reduces the capital loss, then the NOL, then the business credit, and lastly basis in the assets.
D)   The bondholders of Cuckoo become shareholders of Turaco.
E)   All of the above statements are true.F) A) and B)
G) A) and C)

Question 17

The distinguishing characteristic of a "Type D" reorganization is the acquiring corporation is the one transferring assets to the target corporation in exchange for a controlling interest in the target.

Accepted Answer

A) True 
 B)False

Question 18

Burmese Corporation is interested in acquiring Javanese Corporation by transferring 30% of its stock for all of Javanese's assets valued at $500,000 (basis of $150,000)  and its $200,000 of liabilities. Javanese has created $50,000 in general business research credits which it cannot use. Javanese concentrates on pharmaceutical research whereas Burmese manufactures sun glasses. Burmese uses a discount factor of 8% and the Federal applicable rate is 4%. Javanese will terminate after the restructuring. How will this transaction be treated for tax purposes?

Accepted Answer

A)   Since Javanese has liabilities in excess of its basis, this excess will be taxable to Javanese.
B)   The most that Burmese can use of the general business credits in any year is $4,200.
C)   This transaction could qualify as a "Type A" or a "Type C" reorganization.
D)   All of the above.
E)   None of the above.F) B) and D)
G) B) and C)

Question 19

Angus Corporation purchased 15% of Hereford Corporation 4 years ago for $150,000. Angus acquires 75% more of Herford's stock directly from the Hereford shareholders in an exchange for 25% of the Angus common stock currently outstanding. There is still 10% of the Hereford stock held by its original shareholders as they are not interested in being common shareholders of Angus. This transaction qualifies as what type of reorganization?

Accepted Answer

A)   "Type A" reorganization.
B)   "Type B" reorganization.
C)   "Type C" reorganization.
D)   Acquisitive "Type D" reorganization.
E)   A taxable exchange.F) A) and D)
G) All of the above

Question 20

The continuity of business enterprise requires that at least 40% of the target's assets are acquired with stock.

Accepted Answer

A) True 
 B)False

Exam 7: Corporations: Reorganizations

Correct Answer
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Correct Answer
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The distinguishing characteristic of a "Type D" reorganization is the acquiring corporation is the one transferring assets to the target corporation in exchange for a controlling interest in the target.

Correct Answer
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Which of the following statements is true?

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Which of the following statements regarding "Type B" reorganizations is true?

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

Correct Answer
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Which of the following statements regarding the applicability of the judicial doctrines to a "Type G" reorganization is correct?

Correct Answer
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Correct Answer
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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 .

Correct Answer
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Boot, divi...
View Answer

Correct Answer
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All of the following statements are true about corporate reorganization except:

Correct Answer
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Correct Answer
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The Federal income tax treatment of a corporate restructuring is an extension of allowing entities to form without taxation.

Correct Answer
verified

The acquiring corporation in a "Type G" reorganization reduces the tax attributes carried over from the bankrupt corporation by the percentage in change in ownership.

Correct Answer
verified

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

Correct Answer
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capital loss, built-...
View Answer

Correct Answer
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Correct Answer
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Which of the following statements is true concerning all types of tax-free corporate reorganizations?

Correct Answer
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The continuity of business enterprise requires that at least 40% of the target's assets are acquired with stock.

Correct Answer
verified

Exam 7: Corporations: Reorganizations

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The distinguishing characteristic of a "Type D" reorganization is the acquiring corporation is the one transferring assets to the target corporation in exchange for a controlling interest in the target.

Correct AnswerverifiedShow Answer

Which of the following statements is true?

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Which of the following statements regarding "Type B" reorganizations is true?

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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 AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements regarding the applicability of the judicial doctrines to a "Type G" reorganization is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

____________________ 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 ____________________.

Correct AnswerverifiedBoot, divi...View AnswerShow Answer

Correct AnswerverifiedShow Answer

All of the following statements are true about corporate reorganization except:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Federal income tax treatment of a corporate restructuring is an extension of allowing entities to form without taxation.

Correct AnswerverifiedShow Answer

The acquiring corporation in a "Type G" reorganization reduces the tax attributes carried over from the bankrupt corporation by the percentage in change in ownership.

Correct AnswerverifiedShow Answer

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

Correct Answerverifiedcapital loss, built-...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is true concerning all types of tax-free corporate reorganizations?

Correct AnswerverifiedShow Answer

The continuity of business enterprise requires that at least 40% of the target's assets are acquired with stock.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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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 .

Correct Answer
verified
Boot, divi...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

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

Correct Answer
verified
capital loss, built-...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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