Corporate Reorganizations Flashcards
What are 2 cases of reorganization?
- Two corporations (acquiring and target) merge or consolidate.
- One corporation spins off part of its operation into a separate corporation.
What are Reorganization A and C?
Stocks for assets.
Acquiring company provides stocks in exchange of assets of the target company.
What is Reorganization B?
Stocks for stocks.
Acquiring company provides stocks in exchange of stocks of the target company.
What is Reorganization D?
Divisive. 1 corporation splits into 2.
A Reorganization: Known as? Why?
A statutory merger since the requirements of state law must be met.
A Reorganization: what happens to the target corporation?
Must dissolve.
A Reorganization: which stock can be used: voting or non-voting sock?
Both can be used.
A Reorganization: requirement re: consideration given to Target by Acquiring?
At least 50% of the consideration must be stock.
B Reorganization: requirement re: ownership?
Acquiring must own at least 80% of Target after the transaction.
B Reorganization: which stock can be used: voting or non-voting sock?
Only voting stock can be used.
B Reorganization: is there any boot allowed?
No.
C Reorganization: Difference from A?
Does not have to be a statutory merger (Target does not have to go away).
C Reorganization: which stock can be used: voting or non-voting sock?
Only voting stock.
C Reorganization: Is boot allowed?
Yes, but can’t exceed 20% of the consideration.
C Reorganization: re: acquiring assets?
Acquiring must acquire substantially all of Target’s assets (90% of the asset value and 70% of gross asset value).
When shareholders receive only stock in exchange for property of the acquiring organization under tax free reorganization, do they recognize gain or loss?
No gain or loss is recognized to the shareholders.
If shareholders receive other property in addition to stock, how is it classified? Treatment of gain?
Boot.
Gain is recognized equal to the lower of:
Boot received or Realized gain.
Do corporations recognize gain or loss?
Generally no.
If Acquiring transferes appreciated property to Target, gain (but not loss) will be recognized.
When Target transfers appreciated property to its SHAREHOLDERS, what is the treatment for gain or loss?
Only gain will be recognized.
What would be the shareholder’s basis in the stock received?
Basis in stock surrendered (Target’s) + gain recognized - Boot received.
What would be the basis for the acquiring corporation in the transferor’s asset?
Transferor’s basis in asset + Gain recognized by Transferor.
Question:
Under a recapitalization of a Corp, a shareholder exchanged 1,000 shares of stock (cost: $95,000) for 1,000 share of new stock (worth: $108,000) and bonds (principal amount: $10,000, FMV: $10,500).
What is the amount of shareholder’s recognized gain?
What would be the basis to the shareholder in the stock received?
*Amount realized:
Stock: 108,000 + Bonds(boot): 10,500 = $118,500 - Adjusted basis (95,000) = 23,500.
*Lower of: boot received (10,500) or realized gain (23,500).
*Therefore, shareholder recognize gain of $10,500.
Surrendered basis (95,000) + gain recognized (10,500) - boot received (10,500) = 95,000.
When reorganization occurs, what happens to tax attributes?
Usually carryover to Acquiring.
Tax attributes carryover: what are examples?
Adjusted basis of assets.
Earnings and profits
Carryovers (NOL, capital loss, excess charitable contributions.
Accounting methods (i.e. depreciation methods).
Tax credits carryovers.
