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Ula purchased stock in Purple, Inc., 6 years ago f...

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Ula purchased stock in Purple, Inc., 6 years ago for $150,000. Purple has assets with a value of $180,000 (basis of $75,000) and liabilities of $25,000. Purple transfers most of its assets and all of its liabilities to White Corporation in exchange for $140,000 of White common stock. Purple distributes the White stock and its remaining $15,000 cash to Ula in exchange for all of her Purple stock. Purple then liquidates. How will this transaction be treated for tax purposes? a. Ula recognizes a $5,000 gain on the reorganization. b. Ula recognizes a $15,000 gain on the reorganization. c. Ula recognizes a $15,000 gain and Purple recognizes a $25,000 gain on the reorganization. d. Purple recognizes a $40,000 gain on the reorganization. e. None of the above. Which of the following statements is false? a. A ?Type B? reorganization is most likely to run afoul of the continuity of interest doctrine because the target remains a separate corporation. b. Liabilities are problematic for ?Type A? and ?Type C? reorganizations. c. The step transaction doctrine can be problematic in acquisitive ?Type D? and ?Type C? reorganizations. d. ?Type E? and ?Type F? are not likely to be subject to the ? 382 limitation. e. All of the statements are true. Sweet Corporation is in the candy business and sells most of its products in Europe. Lucky Corporation manufactures horse shoes for domestic consumption. Lucky would like to acquire Sweet Corporation because Sweet has large built-in losses in its business assets and foreign tax credit carryovers. To benefit from the built-in ordinary losses, Lucky will sell most of Sweet?s business assets upon completion of the reorganization. Those assets with built-in gains will be distributed proportionately before the reorganization to Sweet?s shareholders in exchange for 60% of their stock. All of the Sweet shareholders ill receive Lucky stock for their remaining shares in Sweet. Which of the following statements is false? a. The step transaction can be applied to this transaction. b. The continuity of business enterprise test is failed. c. There is no sound business purpose for this restructuring. d. Continuity of interest does not exist for the Sweet shareholders. e. All of the above statements are true. 34. Which of the following is not a requirement for receiving tax-free treatment for a corporate reorganization? a. The step transaction doctrine should apply. b. The continuity of business enterprise test must be met. c. There must be a sound business purpose for the restructuring. d. There must be a plan of reorganization. e. All of the above are requirements. Manx Corporation transfers 40% of its stock and $50,000 in cash to Somali Corporation for $500,000 of assets and all $200,000 of its liabilities. Somali exchanges the Manx stock, cash, and its remaining $100,000 of assets with its shareholders for all of their stock in Somali. After the exchange, Somali liquidates. The exchange qualifies as what type of transaction? a. ?Type A? reorganization. b. ?Type B? reorganization. c. ?Type C? reorganization. d. Acquisitive ?Type D? reorganization. e. A taxable exchange. Racket Corporation and Laocoon Corporation create Raccoon Corporation. Racket transfers $600,000 in assets for all of Raccoon?s common stock. Racket distributes its remaining assets ($300,000) and the Raccoon common stock to its shareholder, Mia, for all of her stock in Racket (basis $950,000) and then liquidates. Laocoon receives all of the preferred stock for its $400,000 of assets. Laocoon distributes its remaining assets ($300,000) and the Raccoon preferred stock to its shareholder, Carlos, for all of his stock in Laocoon (basis $200,000) and then liquidates. How will this transaction be treated for tax purposes? a. This qualifies as a ?Type A? reorganization. Mia recognizes no gain or loss, but Carlos recognizes $300,000 gain. b. This qualifies as a ?Type C? reorganization. Mia and Carlos recognize $300,000 gain, to the extent of the boot. c. This qualifies as a ?Type D? reorganization. Neither Mia nor Carlos recognizes a gain or loss. d. This is a taxable transaction. Mia recognizes $50,000 loss and Carlos recognizes $500,000 gain. e. None of the above. Xian Corporation and Win Corporation would like to combine into one entity. Xian exchanges 40% of its common and preferred stock plus $200,000 cash for 60% of Win?s assets and liabilities. Win distributes the Xian stock, cash, unwanted assets, and liabilities to its shareholders in exchange for their outstanding stock. Win then liquidates. a. This restructuring will qualify as a ?Type A? statutory merger. b. This restructuring will qualify as a ?Type B? reorganization. c. This restructuring will qualify as a ?Type C? reorganization. d. This restructuring will qualify as an acquisitive ?Type D? reorganization. e. This does not qualify as a reorganization under ? 368. A shareholder bought 2,000 shares of Zee Corporation for $90,000 several years ago. When the stock is valued at $200,000, Zee redeems these shares in exchange for 6,000 shares of Yea Corporation stock. This transaction meets the requirements of ? 368. Which of the following statements is true with regard to this transaction? a. The shareholder has a recognized gain of $110,000. b. The shareholder has a postponed gain of $110,000. c. The shareholder has a basis in the Yea stock of $200,000. d. Gain or loss cannot be determined because the value of the Yea stock is not given. e. None of the above statements is true. All of the following statements are true about corporate reorganization except: a. Taxable amounts for shareholders are classified as a dividend or capital gain. b. Reorganizations receive treatment similar to corporate formations under ? 351. c. The transfers of stock to and from shareholders qualify for like-kind exchange treatment. d. The value of the stock received by the shareholder less the gain not recognized (postponed) will equal the shareholder?s basis in the stock received. e. All of the above statements are true. One of the tenets of U.S. tax policy is to encourage business development. Which of the following Code sections does not support this tenet? a. Section 351, which allows entities to incorporate tax-free. b. Section 1031, which allows the exchange of stock of one corporation for stock of another. c. Section 368, which allows for tax-favorable corporate restructuring through mergers and acquisitions. d. Section 381, which allows the target corporation?s tax benefits to carryover to the successor corporation. e. All of the above provisions support the tenet.

 

Paper#3598 | Written in 18-Jul-2015

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