Question 1

The divisive "Type D" reorganization requires that acquiring corporation form a subsidiary to receive all or part of target corporation's assets in exchange for stock. After the transaction,a parent-subsidiary controlled group exists.

Accepted Answer

In a divisive reorganization,a new corporation is created to receive assets of the distributing corporation.However,the stock of the controlled corporation must be dispersed to the distributing corporation's shareholders.A parent-subsidiary relationship is not created.

Question 2

A unique characteristic of a "Type G" reorganization is that the liabilities of the target corporation are liquidated and not assumed by the acquiring corporation.

Accepted Answer

Generally,the liabilities of the target are not liquidated in the other types of reorganizations.

Question 3

The step transaction doctrine is helpful in reorganizations such as a "Type C" and acquisitive "Type D" where all the assets are not desired.

Accepted Answer

The step transaction doctrine is a problem,not a benefit,in these situations.

Question 4

The end results of a "Type C" reorganization are very similar to a "Type A" merger,but all liabilities of the target need not be assumed in a "Type C" reorganization.

Accepted Answer

In a "Type C" reorganization, liabilities of the target may be left behind, whereas in a "Type A" merger, all liabilities of the target must be assumed by the acquiring company.

Question 5

A present value analysis is required to compute the § 382 limitation for any given year.

Accepted Answer

Present value analysis is useful for computing the value to the acquiring corporation of a target's NOL.It is not used in computing the § 382 limitation itself.

Question 6

After a tax-free reorganization,the remaining corporation may not combine the earnings and profits (E & P)of the acquiring and target corporations.The E & P of the acquiring corporation may be used for dividend payments only after the target corporation's E & P are fully utilized.

Accepted Answer

After a tax-free reorganization,the remaining corporation must combine the E & P of the acquiring and target corporations if both amounts are positive.

Question 7

In an acquisitive "Type D" reorganization,the target must control (own at least 80 percent of voting stock)the acquiring corporation after the reorganization.

Accepted Answer

The acquiring must control (at least 50%)the target after the reorganization.

Question 8

Opal exchanges her 1,000 shares of voting stock with a value of $100,000 for 100 bonds each with a face value of $1,000.This qualifies as a tax-free "Type E" reorganization.

Accepted Answer

While an exchange of bonds for stock qualifies as a "Type E" reorganization,stock for bonds does not qualify.

Question 9

The so-called "anti-stuffing" rules are designed to thwart shareholders from contributing assets to a loss corporation,chiefly to increase its value for the computation of the § 382 limitation.

Accepted Answer

The statement accurately describes the purpose of "anti-stuffing" rules. These rules prevent shareholders from artificially increasing the value of a loss corporation to manipulate the limitations set by § 382 of the tax code.

Question 10

The continuity of interest and the continuity of business requirements prevent transactions that appear to be a sale from qualifying for tax-free treatment of a reorganization.

Accepted Answer

The continuity of interest and the continuity of business requirements are two tests that must be met for a transaction to qualify for tax-free treatment under a reorganization. These tests help ensure that the reorganization is not a disguised sale, but rather a true reorganization of the business. If these tests are not met, the transaction will not qualify for tax-free treatment.

Question 11

Since the § 382 limitation purpose is to limit losses available to a corporation acquiring a loss corporation,the limitation applies only to NOLs,built-in losses on transferred assets,and capital losses.

Accepted Answer

The § 382 limitation applies to excess credits carried over from the loss corporation to the acquiring corporation.

Question 12

A 50 percentage point ownership shift evoking the § 382 limitations can occur with a "Type E" reorganization when the shareholders exchange their shares for bonds.

Accepted Answer

The "Type E" reorganization involves only one corporation.Further,an exchange of stock for bonds will not qualify as a "Type E" reorganization.

Question 13

To expedite requests for letter rulings on corporate reorganizations,the entities involved should apply for the letter ruling within 10 weeks of completing the transaction.

Accepted Answer

Requests for a letter ruling must be for contemplated reorganizations not completed reorganizations.The IRS will issue the ruling within 10 weeks from the date of receiving the request.

Question 14

The objective of the § 382 limitation is to restrict the use of tax carryover benefits to a hypothetical future income stream from the former loss corporation's assets,based on its stock value at the time of the reorganization.

Accepted Answer

The stock value is multiplied by the applicable long-term tax-exempt interest rate.

Question 15

A "Type E" reorganization has tax implications for only the security or stockholders and no tax affect on the corporation involved.

Accepted Answer

A Type E reorganization, also known as a "change in identity or form of organization," does not result in any tax consequences for the corporation involved, but may have tax implications for its security or stockholders.

Question 16

Besides the statutory requirements,reorganizations must meet several judicially created doctrines.

Accepted Answer

Judicially created doctrines such as the business purpose doctrine, continuity of interest doctrine, and the step transaction doctrine must also be met in addition to statutory requirements for reorganizations.

Question 17

Since a "Type F" reorganization includes a change from a taxable corporation to flow-through entity,the original corporation stock loses its § 1244 status and earnings and profits do not carry over.

Accepted Answer

The corporation's stock does not lose its § 1244 status,and all of the original corporation's attributes carry over to the new entity.

Question 18

In the business purpose requirement for tax-free treatment of a reorganization,it is the shareholder's business purpose that is paramount.

Accepted Answer

It is the corporation's business purpose that is paramount.

Question 19

With a divisive "Type D" reorganization,two corporations can be created to receive part of the assets of a distributing corporation in exchange for stock,providing that the distributing corporation receives a controlling interest in the new corporations.

Accepted Answer

The number of corporations that are created to receive the assets of the distributing corporation may be one or more.

Question 20

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

The acquiring corporation in a "Type G" reorganization reduces the tax attributes carried over from the bankrupt corporation to the extent of the cancellation-of-debt-income exclusion.

Quiz 7: Corporations: Reorganizations