Ch 7 Part 3

Question 0

Advantages of type A reorganization 2

Answer 0

1 more flexible than other reoganizations, because consideration
Doesn’t need to be solely voting stock

2 substantially all the assets of target corp. need not be acquired
Acquire doesn’t have to by unwanted assets

Question 1

Continuity of interest doctrine (applies to type A)

Answer 1

Stock of acquiring corporation must be significant part of total
Consideration used

Question 2

4 disadvantages of type A reorganization

Answer 2

1 must have 2/3’s shareholder approval, which is costly and
Time consuming if both companies are publicly traded
2 dissenting shareholders of both corporation have right
To have shares independently appraised and purchased for
Cash by acquirer
3 all liabilities of target are assumed
4 target corporation’s may have licenses, rights or other
Privileges that are non transferable

Question 3

Drop down type A reorganization

Answer 3

Rules permit acquiring corp. to transfer (drop down) to controlled
Subsidiary part or all of assets and liabilities acquired in
reorganization

Drop down does not affect nontaxable nature of reorganization
For parent or subsidiary

Question 4

Drop down type A reorganization: basis of subsidiary

Answer 4

Subsidiary takes from parent a carryover basis of assets

Question 5

Sec. 368: triangular mergers

Answer 5

Similar to straight mergers except parent corp. uses controlled
Subsidiary to acquire target corp. stock and assets

The target corp. then merges into subsidiary

Question 6

Triangular mergers: consideration used

Answer 6

Consideration restricted to stock of parent corp., limited amount
Of subsidiary cash and securities can be used

Subsidiary can assume target corp’s liabilities

Question 7

What requirement exists to make a triangular merger nontaxable?

Answer 7

Substantially all requirement

70% FMV of target corps gross assets and 90% FMV of target’s
Net assets

Question 8

3 advantages of triangular merger over straight type A merger

Answer 8

1 target corp assets and liabilities become responsibility of
subsidiary, minimizes claims against parent for contingent liab.
2 because parent corp. is principal shareholder in acquiring
Subsidiary, shareholder approval is easy and less costly in
transaction
3 target corp. shareholders can use installment method to
Recognize gains on sale of parent stock

Question 9

3 steps in triangular type A reorganization

Answer 9

1 additional Acquirer stock is exchanged for subsidiary stock
Between parent and subsidiary
2 Acquiring stock is exchanged from subsidiary to Target corp.
For substantially all of Target corp assets and liabilities
3 target corp liquidates and target’s shareholders receive
Acquirer’s stock in exchange for their target stock/securities

Question 10

What is the post reorganization structure of a triangular type A reorganization?

Answer 10

Acquiring and former target shareholders both own acquirer’s
Stock

The acquiring corporation controls the subsidiary that owns substantially all of target’s assets and liabilities

Question 11

Reverse triangular merger

Answer 11

Similar to triangular merger except subsidiary merges into

Target corporation and subsidiary ceases to exist

Question 12

What is the advantage of a reverse triangular merger

Answer 12

Continuing the target corporation as a going concern allows
The continuing existence of non transferable rights, liscenses
And contracts that it owns

Question 13

Type C reorganization

Answer 13

Asset for stock acquisition

Acquiring corp obtains substantially all of target corp’s assets
In exchange for acquiring corp. voting stock and possibly
Limited amount of other consideration

Question 14

2 steps of type c reorganization

Answer 14

1 Acquiring corp transfers voting stock to target corp in exchange
For substantially all target’s assets
2 acquiring voting stock transferred from liquidating target corp
To target corp shareholders in exchange for target corp. stock

Question 15

Post reorganization structure of type c reorganization

Answer 15

Acquirer’s and target’s former shareholders own Acquiring

Corp, which owns substantially all of target’s assets and liabilities

Question 16

Type C reorganization: if target corporation dissolves what happens to liabilities not assumed by acquiring corporation?

Answer 16

Liabilities become responsibility of target corp’s directors

Question 17

Main difference between a type C and type A reorganization

Answer 17

The target corp. doesn’t dissolve in a type C reorganization
Allowing the target corp to retain its corporate charter

Prevents others from using its corporate name or selling
It’s corporate name to 3rd party

Question 18

Consideration in type c

Answer 18

Solely voting stock of acquirer must be used to obtain at least
80% of target corp

Question 19

3 advantages of type C reorganization

Answer 19

1 type c does not have to comply with merger laws of state or
Federal government
2 acquirer only assumes liabilities in agreement, doesn’t assume
Contingent liabilities
3 in type c, shareholders of acquiring corp generally need
Not approve acquisition, thus reducing transaction cost

Question 20

5 disadvantages of type C reorganization

Answer 20

1 must use voting stock in type C
2 type C has tighter boot restrictions
3 target liabilities might be substantial
4 substantially all test, limits target corp from selling, disposing,
Retaining assets acquirer doesn’t want right away
5 dissenting shareholders of target can have shares independently
Appraised and purchased for cash

Question 21

2 other types of type C reorganizations

What type of reorganization doesn’t exist?

Answer 21

1 drop down type C reorganization

2 triangular type C reorganization

Reverse triangular type C reorganizations don’t exist

Question 22

2 types of type D reorganizations

Answer 22

Can be either acquisitive or divisive

Question 23

Acquisitive Type D reorganization 2 steps

Answer 23

1 Target corp transfers substantially all of its assets to an 
acquiring corp (transferee) in exchange for acquirer's stock

2 target corp liquidates and gives acquirers stock to shareholders
In exchange for their target stock and securities

Question 24

Post reorganization structure of Acquisitive Type D reorganization

Answer 24

Acquirers shareholders own Acquiring corp. stock

Target corp’s former shareholders control acquiring corp

Question 25

Section 368: Control in acquisitive type D reorganization

Answer 25

Control is either 50% or more of combined voting power of all
Classes if voting stock

Or 50% or more of total value of all classes of stock

Question 26

Type B reorganization

Answer 26

Target corporation shareholders exchange Target stock that
Gives acquirer controlling interest in T corp for acquiring
Corporation voting stock

Target corp. remains in existence as acquiring corp’s subsidiary

Question 27

Post reorganization structure of Type B reorganization 3 things

Answer 27

Acquirer and former target shareholders own acquiring corporation
Stock

Acquiring corporations controls the Target corporation

Minority shareholders own no more than 20% T corporation
Stock

Question 28

Type B reorganization: basis of target corp’s assets (inside basis)
And tax attributes

Answer 28

Basis of targets assets and tax attributes remain the same

Question 29

Type B reorganization: section 338 solely for voting stock requirement

Answer 29

Acquiring corporation must acquire target corp stock in exchange
Solely for acquiring corp voting stock

Strictest reorganization requirement out of any type of
reorganization

Question 30

Type B reorganization: Debt obligations

Answer 30

Acquiring corp. debt obligations can be exchanged for target
Corp debt obligations and not recognize any gains/losses if
Face amounts are the same

Question 31

2 exceptions where acquiring corp can use cash in type B reorganization

Answer 31

1 target corp shareholders can receive cash in exchange for
Fractional shares

2 acquiring corp can pay reorganization expenses (legal fees, accounting fees, administrative expenses) of target corp

Question 32

Type B reorganization: section 368 control

Answer 32

80% of total combine voting power and value of all classes of
stock

Up to 20% minority interest shareholders can exist

Question 33

What would make a type B reorganization taxable

Answer 33

Acquiring corp can’t use cash to purchase dissenting minority
Shareholders stock

Question 34

Timing of type B reorganizations

Answer 34

Stock acquisitions must be completed within 12 month period

Question 35

Tax consequence of type B reorganization for target corp. shareholders

Answer 35

1 shareholders recognize no gain or loss on exchange unless
Fractional shares are acquired for cash or target corp redeems
Some of their stock

2 target shareholders carry over basis and holding period

Question 36

Tax consequences of type B reorganization for acquiring corporation

Answer 36

1 acquiring corp recognizes no gain or loss when it issues
voting stock for target corp stock

2 basis and holding period carry over

Question 37

5 advantages of type B reorganization

Answer 37

1 acquisition of target corp. can be done in one transaction,
without approval of target’s management
2 target remains in existence and its tax attributes stay with it
3 corporate. America, goodwill, licenses and rights of target
Corp. may be preserved
4 acquiring corp doesn’t directly assume the target’s liabilities
5 acquiring and target corp. can report their post acquisition
Results on consolidated basis

Question 38

5 disadvantages of type B reorganization

Answer 38

1 acquiring corp can use only voting stock as consideration
2 issuing additional stock for acquisition can dilute control
And voting power of corporate shareholders
3 acquiring corp must retain control through 80% ownership
4 dissenting minority shareholders
5 bases of target corp stock (outside basis) and target corp assets
(Inside basis) are not stepped up to FMVs upon ownership
Change (as in taxable transaction)

Question 39

2 other types of Type B reorganizations

Answer 39

1 drop down

2 triangular

Question 40

Type G reorganization

Answer 40

Transfer by corporation of part or all it’s assets to another
Corporation in Title 11 bankruptcy in exchange for stock
Of acquirer

Court approved plan

Question 41

2 steps of divisive Type D reorganization (split off form)

Answer 41

1 distributing corporations transfers part of distributing corp’s
Assets for controlled corp’s stock and other securities

2 distributing corp distributes controlled corp stock to distributing
Shareholders in exchange for all the distributing stock held
By members of shareholder group

Question 42

Post reorganization structure of divisive type D reorganization (split off form)

Answer 42

Some of distributing corps shareholders own Distributing corp

Some of distributing corps shareholders own controlled corp

Question 43

3 forms nontaxable Divisive Type D reorganization can assume?

Answer 43

1 spin offs
2 split offs
3 split ups

Question 44

How can a divisive type D reorganization be nontaxable

Answer 44

Both asset transfer and section 355 distribution must be part
Of single transaction governed by plan of reorganization

Question 45

What 4 business objectives can a divisive type D reorganization accomplish?

Answer 45

1 divide an enterprise into 2 or more corporations to separate
High risk business from low risk business
2 split up single business among 2 or more disputing shareholders
3 reorganize an enterprise according to functions, profit centers,
Geographical areas
4 divest operations because anti trust laws

Question 46

Split off

Answer 46

Distributing corp transfers some of its assets to controlled corp
In exchange for stock

The distributing corp distributes stock in controlled corp to
Some of its shareholders in exchange for some of their stock

Question 47

Divisive Type D reorganization: distributing or transferor property acquired

Answer 47

D corp transfers part or all of its assets (liabilities) to controlled
Corp

Question 48

Type D reorganization - acquisitive: consideration that can be used

Answer 48

Stock, securities and other property of controlled corporation

Question 49

Type D reorganization - acquisitive: What happens to the distributing or transferor corporation

Answer 49

Distributing or transferor corp must distribute stock, securities,
boot received to its shareholders

Distributing corp may liquidate or remain in existence

Question 50

Type D reorganization - acquisitive: shareholders’ recognized gain

Answer 50

Lesser of realized gain or FMV of boot received

Question 51

What is control defined as in a Divisive D reorganization?

Answer 51

80% under section 368