Corporate Reorgs

Question 1

List the seven types of organizations.

Answer 1

Type A
Type B
Type C
Type D
Type E
Type F
Type G.

Question 2

List the tax consequences of a merger or acquisition of assets in a taxable reorganization.

Answer 2

Target corporation recognizes gains and losses on the transfer of its assets;
Adjusted basis of target’s assets is Fair Market Value;
Excess purchase price is allocated to goodwill and amortized over 15 years.

Question 3

Describe a Type C Reorganization.

Answer 3

An acquisition of “substantially all” of the assets of the target solely in exchange for voting stock of the acquiring firm.

Question 4

What are the requirements for a Type D Reorganization?

Answer 4

The parent corporation must receive and distribute control of the subsidiary in the exchange (80% of the vote and other classes of stock).

Question 5

What is the benefit of a 338(h)(10) election?

Answer 5

Requires the recognition of any gain generated by the difference between the adjusted basis of the target’s assets and the fair market value of the stock;
Benefit is that assets are stepped up to Fair Market Value.

Question 6

Describe a Type A Reorganization.

Answer 6

Merger or consolidation under state law (called a statutory merger).

Question 7

Describe a Type D Reorganization.

Answer 7

A divisive reorganization (not acquisitive) in that a corporation (the parent) divides by transferring assets to a subsidiary in exchange for subsidiary shares.

Question 8

What are the requirements for a Type A Reorganization?

Answer 8

Most of the assets of the target firm are exchanged for equity (qualified stock) in the acquiring firm.

Question 9

What are the requirements for a Type C Reorganization?

Answer 9

Acquiring firm acquires substantially all of the assets of the target in exchange for voting stock;
Target firm distributes stock and other assets to its shareholders;
Substantially all is 90% of net asset value and 70% of gross asset value.

Question 10

When an organization is reorganized, what gain or loss, if any, is required to be recognized by the acquiring corporation?

Answer 10

The acquiring corporation does not recognize gain or loss on the transfer of its stock for the acquired corporation.

Question 11

Describe a Type B Reorganization.

Answer 11

An acquisition of controlling interest of the stock of the target solely in exchange for voting stock of the acquiring firm.

Question 12

What are the tax consequences of an acquisition via the purchase of stock and operation of acquired organization as a subsidiary?

Answer 12

Neither firm recognizes any gain or loss;
The purchase price of the target’s shares is adjusted basis;
The adjusted basis of the target’s assets does not change.

Question 13

What are the requirements for a Type B Reorganization?

Answer 13

The acquiring firm must exchange its own voting stock for the stock of the target;
The acquiring firm must own at least 80% of the stock of the target firm after the acquisition;
Any consideration other than voting shares in the acquiring corporation will violate the requirements of the reorganization.