1. A transaction whereby one corporation issues its voting stock to acquire all the stock of another is a Type B reorganization.
2. A transaction whereby a corporation transfers all its assets and liabilities to a newly created corporation in exchange for the new corporation’s stock, whereupon the transferor’s shareholders exchange their stock for all of the stock in the new corporation is a Type F reorganization.
3. A transaction whereby one corporation acquires all the assets and liabilities of another with 50 percent cash and 50 percent nonvoting stock may qualify as a Type A reorganization.
4. Two manufacturing corporations transfer all their assets and liabilities to a new corporation. All “old” shareholders receive “new” stock equal in value to their “old” stock. This is a Type F reorganization.
5. An Acme, Inc. bondholder receives Acme stock with a value in excess of the boldholder’s basis in the Acme bonds surrendered. This is an example of a tax- free Type E reorganization.
6. A party to a tax-free reorganization will never recognize a loss in the transaction, even if boot is received.
7. A Type B reorganization may be treated as a Type C reorganization if the acquired corporation is promptly liquidated.
8. When a shareholder receives bonds in exchange for the shareholder’s stock in a reorganization, the basis in the bonds will depend on the basis in the “old” stock.
9. If solely voting stock is issued in a Type C reorganization, there is no limit on the amount of liabilities that may be assumed.
10. Voting convertible preferred stock may be used in Types A, B, C, and D reorganizations.
MULTIPLE CHOICE QUESTIONS
11. The Blues brothers each own 50 percent of the stock of Raiders, Inc. After a serious disagreement, they decide to divide the business in two. Raiders therefore transfers half its assets to a new corporation, Doolittle, Inc., in exchange for its stock and the other half of its assets to another new corporation, Minimum, Inc., also in exchange for its stock. Both brothers turn in their shares in Raiders, with one brother receiving all of the stock in Doolittle, and the other brother receiving all of the stock in Minimum. Raiders’ earnings and profits at the time were $1,000,000. This transaction can best be described as:
a. Two Section 351 transactions
b. Acquisitive Type D reorganization
d. Tax-free split-up
12. Trampolines, Inc. transfers all its assets to a new corporation, Trogs, Inc., in exchange for its voting stock. The shareholders of Trampolines turn in their stock for all the shares of Trogs. The transaction meets the definition of:
a. A Type C reorganization
b. Both a Type C and a Type D reorganization
c. A Type C, D, and F reorganization
d. A Type A, C, D, and F reorganization
13. Ivory, Inc. acquires all the assets of Mammoth, Inc. If the consideration paid is as follows, which transaction qualifies as a Type C reorganization?
a. Voting common stock in Ivory worth $200,000 and the assumption of $800,000 of Mammoth’s liabilities.
b. Voting convertible preferred stock in Ivory worth $550,000 and warrants worth $450,000 to purchase stock in Ivory’s subsidiary.
c. Voting common stock in Ivory worth $750,000, assumption of liabilities of Mammoth of $200,000, plus $50,000 in cash.
d. Nonvoting convertible preferred stock in Ivory worth $500,000 and cash of $500,000.
14. The “solely for voting stock” requirement in Type B reorganizations is met in all the following cases, except:
a. The acquiring corporation agrees to assume the acquired corporation’s shareholders’ expenses but only if directly related to the acquisition.
b. The acquired corporation, on the eve of the acquisition, redeems five percent of its shares for cash.
c. The acquiring corporation pays cash in lieu of fractional shares resulting from the stock for stock exchange.
d. The acquiring corporation assumes the acquired corporation’s legal expenses incurred in connection with the acquisition.
15. Abacus, Inc. forms a corporation, Sirius, Inc., by transferring 18 percent of Abacus’s stock to it for 100 percent of the stock in Sirius. Sirius, Inc. acquires 90 percent of the stock of Tyrol, Inc. for its stock in Abacus, whereupon Sirius is merged into Tyrol, the latter surviving. These transactions may best be described as:
a. A Section 351 transfer, followed by a Type B reorganization
b. A spin-off
c. The purchase of a subsidiary corporation
d. A reverse triangular merger
16. In a Type B reorganization the following statements are true, except:
a. The shareholders’ stock bases carry over to the acquiring corporation.
b. The acquiring corporation’s basis in the acquired corporation’s assets depends on the value of the consideration paid.
c. The acquired corporation’s tax attributes generally remain in the acquired corporation.
d. Neither gain nor loss is generally recognized by the corporations involved, nor is there any recapture of depreciation or investment tax credit.
17. The following are requirements under Section 355 in order to qualify a transaction as a divisive Type D reorganization, except:
a. Shareholders must not sell their stock for at least five years after the transaction.
b. There must be a substantial business purpose for the transaction.
c. Both the transferor corporation and the controlled corporation must be engaged in an active trade or business after the distribution.
d. 80 percent control must be transferred to the transferor’s shareholders.
18. Which of the following statements concerning Type B reorganizations is not correct?
a. Solely voting preferred stock may be used
b. The result is always a parent-subsidiary group
c. Solely voting stock of a corporation controlling the acquiring corporation may be used in the transaction
d. Cash may account for up to 20 percent of the consideration used to make the acquisition
19. Target Corporation was merged into existing Parent Corporation. As a result of the merger, Target’s shareholders received common stock in Parent having a fair market value of $400,000, and non-convertible bonds of Parent having a fair market value of $600,000. What type of reorganization has taken place?
a. Type A
b. Type C
c. Type D
d. None; this is a taxable exchange
20. The acquiring corporation does not obtain the target corporation’s tax attributes in a (an)—
a. Type A reorganization
b. Type B reorganization
c. Sec. 332 liquidation
d. The acquiring corporation obtains the target’s tax attributes in all of the above