Chapter 19 Lecture

Question 1

Section 351 Tax Deferral Requirements

Answer 1

1. Property in (from shareholder to corporation)
2. Stock out (from corporation to shareholder)
3. Control after

Question 2

Section 351 Transfer of property to corporation

Answer 2

• goods and/or services exchanged for stock
• receipt of boot triggers gain, but not loss
• boot is nonqualifying (not stock) received by the shareholder

Question 3

Section 351 Transferor(s) of property must be in control which is defined as

Answer 3

*80% or more of the corporation’s voting stock and each class off nonvoting

Question 4

Receipt of boot triggers gain recognition

Answer 4

• limit is lesser of FMV of the boot or the gain realized
• boot is allocated based on the FMV of the properties transferred
• the character of gain recognized depends on the nature of the asset transferred on which gain is recognized

Question 5

Computing the tax basis of stock received in a tax-deferred section 351 transaction
“substituted basis” (affect to shareholder)

Answer 5

+ cash contributed
+ tax basis of other property contributed
- liabilities assumed by the corporation on property contributed
= tax basis of stock received

Question 6

Computing the tax basis “substituted basis” of stock received in a tax-deferred section 351 transaction when boot is received (affect to shareholder)

Answer 6

+ cash contributed
+ tax basis of other property contributed
+ gain recognized on the transfer
- FMV of boot received
- liabilities assumed by the corporation on property contributed
= tax basis of stock received

Question 7

Assumption of liability is not considered _______

Answer 7

boot

Question 8

Computation of tax basis of each asset received by the corporation in a Section 351 (affect to corporation)

Answer 8

+ tax basis of the asset contributed by the shareholder
+ gain recognized by the shareholder on the transfer of the asset to the corporation
= tax basis of the asset received

Question 9

Contributions to Capital in a tax-deferred transfer of property to a corporation

Answer 9

• transfer of property but no stock or other property is received in return
• Corporation takes a carryover tax basis in property contributed by a shareholder
• Corporation takes a zero tax basis in property contributed by a nonshareholder
• Shareholder making a capital contribution increases the tax basis in existing stock by the tax basis of the property contributed

Question 10

Section 1244 Stock qualifications

Answer 10

• Small corporation (

Question 11

in a Section 1244 transaction a shareholder treats loss as a

Answer 11

ordinary loss

Question 12

A taxable asset acquisitions allows the acquiring corporation to

Answer 12

step-up the tax basis of the assets acquired to fair value (less of a gain later on upon sale b/c it’s taxed now)

Question 13

In stock acquisitions and tax-deferred asset acquisitions, the tax basis of the assets

Answer 13

remain at the carryover value (generally, cost less accumulated depreciation) (keeping lower basis, so higher gain later on upon sale)

Question 14

Taxable acquisitions include

Answer 14

cash purchases of stock

Question 15

A stock acquisition for cash results in the acquired company retaining …

Answer 15

its tax and legal identity albeit as a subsidiary of the acquiring company

Question 16

The acquiring company can …

Answer 16

liquidate acquired company into itself or

merge it into an existing subsidiary to remove the subsidiary

Question 17

Tax-deferred acquisitions

Answer 17

• Taxpayers reorganize corporation in a tax deferred manner under section 531
• Taxpayers to reorganize their corporate structure in a tax-deferred manner
• For tax purposes, reorganizations include
  
  • Acquisitions and dispositions of corporate assets (including subsidiaries stock)
  • Corporation’s restructuring of its capital structure

Question 18

Type A Asset Acquisitions

Answer 18

• One corporation acquires the assets and liabilities of another corporation in return for stock or a combination of stock and cash
• Acquisition is tax-deferred if the transaction satisfies the continuity of interest, continuity of business, and business purpose requirements
• Must meet state law requirements to be a merger or consolidation

Question 19

Forward Triangular Type A Merger

Answer 19

• Acquiring corporation uses stock of its parent corporation to acquire the target corporation’s stock, after the target corporation merges into the acquiring corporation
• For tax-deferred purpose, the transaction must meet the requirements to be a Type A merger
• Acquiring corporation must use solely the stock of its parent corporation and acquire “substantially all” of the target corporation’s property in the transaction