Topic 8 Reorganizations

Question 1

What are the 4 basic types of corporate acquisitions?

Answer 1

• taxable asset purchase from corp
• tax deferred asset purchase from corp
• taxable stock purchase from shareholders
• tax deferred stock purchase from shareholders

Question 2

Taxable Acquisitions:

• acquire ongoing business through _____ purchase from share holder
• -acquired company _______ tax a legal identity
• -then can _________ into itself or _____ into another
• -asset basis is _________ and (does / does not) reflect amount paid for shares

-purchase business ______ for cash - shareholder recognizes ____/____ on each asset individually

Answer 2

stock; retains; liquidate; merge; unchanged; does not

assets; gain/loss

Question 3

§338 Election:

• purchase __% or more of another corp stock within a __ month period
• treated as deemed _____ ____
• buyer receives ___ ____ __ in each asset
• shareholder of seller can treat as _____ ____ and pay single level of _______ _____ tax
• §338(h)(10) election when acquire __________- seller report gain from deemed sale of target assets in lieu of ______ ____ from sale of target stock

Answer 3

80%; 12

asset sale

tax step up

stock sale; capital gains

subsidiary; actual gain

Question 4

Tax Deferred Acquisition:

• Reorganizations under §351 include:
• –acquisition and dispositions of _______
• –restructure of _______ structure
• –place of ___________
• –company ____

-Tax deferral predicated on the seller receiving a __________ ownership interest in assets transferred in the form of ______ in the acquiring corporation

Answer 4

assets; capital; incorporation; name

continuing; equity

Question 5

Judicial Principles:

• __________ __ ________ - shareholders of target retain continuing ownership in the target assets or historic business through ownership of acquiring corporation stock
• –regs provide example that continuity is maintained when target shareholders receive, in the aggregate, equity equal to __% or more of the total value of consideration received

Answer 5

Continuity of Interest

40%

Question 6

Judicial Principles:

• __________ __ ________ __________-acquiring corporation must continue the business of the target or use a significant portion of their assets
• –does not apply to acquiring corporation-they can sell of their assets after ___________

Answer 6

Continuity of Business Enterprise

reorganization

Question 7

Judicial Principles:

-________ _______ ____-acquiring corporation must show a significant business purpose for the transaction, other than tax avoidance.

Answer 7

Business Purpose Test

Question 8

Type A Reorganization:

• known as _________ ______ or _____________
• one corporation acquires ______ and __________ of another in return for _____ and/or ____
• transaction satisfies the ____ ________ __________
• meets _____ ___ to be a merger or consolidation
• Types:
• –________/________: target is merged into acquiring
• –________/________: target is the surviving entity

Answer 8

statutory merger; consolidation

assets; liabilities; stock; cash

three judicial principles

state law

upstream/forward;
downstream/reverse

Question 9

Type A Reorganization:

• no gain/loss ________ by target shareholder (unless ____ received)
• no gain/loss __________ by acquiring corp or target corp
• the _________ corp gives its stock and/or cash to the ______ corp, who then give it to their ___________. The shareholder returns the ______ _____ to the ______ ____ who then gives its assets and liabilities to the _________ ____
• at least __% of the consideration must be the _________ ____ stock

Answer 9

received; cash

recognized

acquiring; target; shareholder; target stock; target corp; acquiring corp

40%; acquiring corp

Question 10

Forward Triangular Type A Reorganization:

• acquiring corporation is a __________ and uses stock of its ______ corporation to acquire ______ corporation’s stock:
• –must use ______ the stock of parent corporation
• –must acquire “_____________ ___” of the target corporation’s ________ in the transaction:
• —–IRS interprets to mean __% of the FMV of target corporation’s net properties and __% of FMV of target corporation’s gross properties

Answer 10

subsidiary; parent; target
solely
substantially all; property
90%; 70%

Question 11

Forward Triangular Type A Reorganization:

The acquiring corporation has a subsidiary - they transfer _________ _________ ______ and ____ to the target shareholder who then gives the subsidiary all of the _______ _____ that the shareholder owned. Now that the subsidiary has all the target stock, the target corporation gives the subsidiary all of the ______ __________. The entity that survives is the __________, and the ______ ___________ ceases to exist - they are _______ into the subsidiary.

Answer 11

acquiring corporation stock; cash
targets stock; target properties
subsidiary; target corporation
merged

Question 12

Reverse Triangular Type A Reorganization:

• acquiring corporation is a _________ and uses ______ stock of its ______ corporation to acquire target corporation’s stock:
• –surviving corporation must hold “__________ ___” of the property of ____ surviving and merged corporation
• –target shareholders must ________ stock that constitutes control of target (__% or more)
• –target shareholders must receive ______ ______ _____ in return

Answer 12

subsidiary; voting; parent
substantially all; both
transfer; 80%
parent voting stock

Question 13

Reverse Triangular Type A Reorganization:

The subsidiary gets the target shareholder ______ stock and/or cash.

The target shareholder only has to give back __% of the target stock - it doesn’t have to be all of the target stock.

The ________ transfers all of its stuff into the ______. All target and subsidiary properties must ______.

The ________ is merged into the ______ and the ______ survives.

Answer 13

voting
80%
subsidiary; target; survive
subsidiary; target; target

Question 14

Type B Reorganization:

• _____-___-_____ acquisition
• acquiring corp must acquire __% or more of target corp using solely ______ stock of acquiring corp
• __________-even $1 can taint and cause it to be fully taxable
• ____ among publicly traded corporations but pretty ______ among small business

Answer 14

stock-for-stock
80%; voting
restrictive
rare; common

Question 15

Type B Reorganization:

The acquiring corp is only ______ stock - no ____, only ______ stock to the target shareholder.

The target shareholder gives all of its target _____ to the acquiring corp.

The acquiring corporation ________ the target ___________ after the exchange.

The shareholder gets a ________ gain or loss recognition.

The acquiring corp takes _________ basis from the shareholder in the stock that it has received.

Answer 15

voting; cash; voting
stock
controls; immediately
deferred
carryover

Question 16

Type C Reorganization:

Look like type A but type A is controlled by ______ ___, type C is controlled by ___

The acquiring corp give its ______ _____ to the target corp, who then gives it to the ______ shareholder.

In exchange the target shareholder gives the _____ _____ back

The target corp transfers _____________ ___ ______ to the acquiring corp

Answer 16

state law; IRC
voting stock; target
target stock
substantially all assets

Question 17

Type A transactions

If cash received, how to calculate gain/loss?
How to calculate stock basis for stockholder?

Answer 17

gain = the lesser of the gain realized or cash received

stock basis = received stock FMV basis - basis in stock given + gain recognized - cash received

Question 18

taxable merger calculations

calculate gain/loss recognized by shareholder

calculate shareholders basis in stock received

Answer 18

gain (loss) = fmv stock received + cash received - tax basis in stock given

basis = fmv stock received