Ch 7 Part 2 Flashcards
Taxable acquisition vs. nontaxable reorganization: target corporation’s amount of gain or loss (2 things taxable, 3 things non)
Taxable: all gains or losses recognized, installment method
Available if payments deferred
Non: generally no gain/loss recognized, gain recognized when
Target corp. receives boot or does not distribute boot property
To its shareholders
Gain also recognized on distribution of appreciated boot or
Retained earnings
Taxable acquisition vs. nontaxable reorganization: consideration used in acquisition
Taxable: primarily cash and debt instruments, may involve
Some stock of acquiring corp.
Non: primarily voting stock and limited amount of cash/debt
Taxable acquisition vs. nontaxable reorganization: target corporation -depreciation recapture
Taxable: Sec. 1245 and 1250 depreciation recaptured
Non: sec. 1245 and 1250 depreciation not recaptured unless
Boot triggers recognition of gain
Taxable acquisition vs. nontaxable reorganization: acquiring corporation- gain or loss when stock is exchanged for property
Taxable: none recognized
Non: none recognized
Taxable acquisition vs. nontaxable reorganization: acquiring corporation - gain or loss when boot is exchanged for property
Same for Taxable and non: gain or loss recognized if noncash
boot property is Transferred to target corporation
Taxable acquisition vs. nontaxable reorganization: acquiring corporation - basis of acquired assets
Taxable: cost
Non: same as target corporation’s basis increased by gain
recognized
Taxable acquisition vs. nontaxable reorganization: acquiring corporation - holding period of acquired assets
Taxable: begins day after transaction date
Non: includes holding period of target corp
Taxable acquisition vs. nontaxable reorganization: acquiring corporation - acquisition of target corporation tax attributes
Taxable: no
Nontaxable: yes
Taxable acquisition vs. nontaxable reorganization: target corporation shareholders - amount of gain or loss
Taxable: realized gain or loss is recognized, installment method
Available if payments are deferred
Non: realized gain is recognized to extent of boot received,
Realized losses are not recognized
Taxable acquisition vs. nontaxable reorganization: target corporation - character of gain or loss
Both taxable and non: depends on nature of each asset
distributed
Taxable acquisition vs. nontaxable reorganization: target corporation shareholders - character of gain or loss
Taxable- capital gain or loss, maybe sec. 1244 loss
Non: capital gain, or dividend if boot is received
Taxable acquisition vs. nontaxable reorganization: target corporation shareholders - basis of stock and securities received
Taxable: cost, generally FMV of stock or other securities received
Non: substituted basis referenced to the stock and securities
Surrendered, FMV for boot property
Taxable acquisition vs. nontaxable reorganization: target corporation shareholders - holding period of stock and securities received
Taxable: begins day after transaction date
Non: includes holding period for stock and securities surrendered,
Day after transaction date for boot property
Taxable acquisition vs. nontaxable reorganization: target corporation - parent subsidiary relationship established
Yes for both taxable and nontaxable
Taxable acquisition vs. nontaxable reorganization: target corporation - consolidated return election available
Yes for both taxable and nontaxable
Taxable acquisition vs. nontaxable reorganization: target corporation - basis in assets
Taxable: unchanged by stock acquisition unless sec. 338 election
Is made
Non: unchanged by stock acquisition, no sec. 338 election
Available
Taxable acquisition vs. nontaxable reorganization: target corporation - tax attributes
Retained by target corporation for both taxable and nontaxable
In a reorganization, because the target corporation recognizes no gain on asset transfer, the carryover basis is…
Not stepped up
Section 354: shareholders in reorganization 1 thing
Section 356? 2 things
Shareholders recognize no gain or loss if they receive acquires
Stock in exchange for target corps stock in reorganization
Sec. 356 has shareholders recognize gain to extent that they
Receive boot and no qualifying property that doesn’t represent
Continuation of equity interest
Shareholder recognize gain to extent of lesser of realized gain
Or amount of cash received + FMV of noncash property received
Under section 354, when is the receipt of securities taxable?
When principal amount of securities (other than stock) received
Exceeds principal amount of securities surrendered
FMV of excess constitutes boot, ex. Debt securities
Sec. 358: basis of stock and securities (nonrecognition property) received by target corporation shareholders and security holders
Basis of nonrecognition property received =
Adjusted basis of stock and securities surrendered
+ any gain recognized in exchange
- cash received in exchange
- FMV of noncash property received in exchange
Type A reorganizations encompass which four transactional structures?
1 mergers
2 consolidations
3 triangular mergers
4 reverse triangular mergers
Type A reorganization - merger or consolidation: the target corporation property acquired
Assets and liabilities of target corporation
Type A reorganization - merger or consolidation: consideration that can be used
Voting and non voting stock, securities and property of acquiring
Corporation
Type A reorganization - merger or consolidation: what happens to target corporation
Target corporation liquidates as part of merger
Type A reorganization - merger or consolidation: shareholders’ recognized gain
Lesser of realized gain or FMV of boot received
Requirements for Type A reorganization: it’s purpose
Transaction must have business purpose and meet continuity of interest and business enterprise requirements
Type B reorganization - stock for stock: target corporation property acquired
At least 80% of voting and non voting target corporation stock
Type B reorganization - stock for stock: consideration that can be used
Voting stock of acquiring corporation
Type B reorganization - stock for stock: what happens to target corporation
Becomes subsidiary of acquiring corporation
Type B reorganization - stock for stock: shareholders’ recognized gain
None
Requirements for type B reorganization: boot paid by transferor
Boot paid by transferor might render entire transaction taxable
Type C reorganization - assets for stock: target corporation property acquired
Substantially all target corp. assets and possibly some or all
Of its liabilities
Type C reorganization - assets for stock: consideration that can be used
Acquiring corporation stock, securities and other property,
Provided at least 80% of assets are acquired for voting stock
Type C reorganization - assets for stock: what happens to the target corporation .
Target corporation liquidates
Target corporation liquidation
Acquiring Stock, securities and boot received in reorganization
and all Of target corp’s remaining properties must be distributed
to Shareholders and creditors
Target corporation receives all its target stock and securities
From its shareholders
Type C reorganization - assets for stock: shareholder’s recognized gain
Lesser of realized gain or FMV of boot property
Type C reorganization - assets for stock: for advanced ruling purposes what does, “substantially all” mean
70% of gross assets and 90% of net assets of T corporation
Type D reorganization - acquisitive: target corporation property acquired
Substantially all target corps assets and possibly some or all of
It’s liabilities
Type D reorganization - acquisitive: consideration that can be used
Acquiring corporation stock, securities and other property
Type D reorganization - acquisitive: what happens to target corporation
Target corporation liquidates
Type D reorganization - acquisitive: shareholders’ recognized gain
Lesser of realized gain or FMV of boot received
Type D reorganization - acquisitive: 3 requirements to be considered type D
1 “substantially all” is same as in type C
2 continuity if interest requirement applies
3 control is defined as 50% voting power or 50% value of
Acquiring corporation stock
How is a type A reorganization unique in comparison to other
statutory reorganizations?
Corporation law is an important factor in determining whether
Transaction qualifies as a nontaxable merger
Type A reorganization
Merger or consolidation that satisfies the corporation laws of
The US, a state, the District of Columbia or a foreign country
Type A merger, most common type
Involves acquiring corp. transferring its stock, securities and
Boot to target corporation in exchange for its assets and
Liabilities
Another form of Type A merger
Acquiring corporation exchanges it’s stock, securities and
Other consideration directly for target corp stock and securities
Held directly by target corp. shareholders and creditors
Type A consolidation, 2 types (similar to merger)
A New corporation uses stock, securities and other consideration
To acquire assets of 2 or more existing target corporations
Other type: new acquiring corp transfers it’s stock, securities,
And boot directly to target corp shareholders and creditors
In exchange for their stock and securities
Section 368 makes a Type A reorganization…
The must flexible reorganization by placing no restrictions on
Kind of consideration that can be used
Type A reorganization merger: what are its 2 steps?
1 acquiring stock and possibly other securities transferred to
T corp in exchange for T corp’s assets and liabilities
2 Acquiring stock and any securities and consideration received
Is transferred to T corp shareholders in exchange for their T stock
Securities
What is the post reorganization structure of a type A merger?
Acquiring and Target’s former shareholders/creditors own A corp. stock, which owns Assets and liabilities of A and T corps
