On January 10 of the current year, Austin Corporation acquires for cash 8% of Travis Corporation’s single class of stock. On August 25 of the current year, Austin makes a tender offer to exchange Austin common stock for the remaining Travis shares. Travis shareholders tender an additional 75% of the outstanding Travis stock. The exchange is completed on September 25 of the current year. Austin ends up with slightly more than 83% of the Travis shares. The remaining 17% of the Travis stock is held by about 100 former shareholders of Travis who own small blocks of stock. Your tax manager has asked you to draft a memorandum explaining whether one or both of the two acquisition transactions qualify as a nontaxable reorganization. If part or all of either transaction is taxable to Travis’ shareholders, suggest ways to restructure the acquisitions so as to maximize tax benefits of the transaction. Assume that Austin does not want to make a Sec. 338 election. Matt Bonner, CEO of Travis, asked a question that might be relevant to reporting the transaction: To simplify the corporate structure, can Austin liquidate Travis into Austin without recognizing any gain or loss? At a minimum you should consult: • IRC Sec. 368(a)(1)(B) • Reg. Sec. 1.368-2(c) • Eldon S. Chapman, et al. v. CIR, 45 AFTR 2d 80-1290, 80-1 USTC ¶9330 (1st Cir., 1980) • Arden S. Heverly, et al. v. CIR, 45 AFTR 2d 80-1122, 80-1 USTC ¶9322 (3rd Cir., 1980)
> How will a partner’s distributive share be determined if the partner sells one-half of his or her beginning-of-the-year partnership interest at the beginning of the tenth month of the partnership’s tax year?
> The City of Omaha donates land worth $500,000 to Ace Corporation to induce it to locate in Omaha and create an estimated 2,000 jobs for its citizens. a. How much income, if any, must Ace report on the land contribution? b. What basis does Ace take in t
> Which of the following items can be deducted (up to $5,000) and amortized as part of a partnership’s organizational expenditures? a. Legal fees for drawing up the partnership agreement b. Accounting fees for establishing an accounting system c. Fees f
> Rick has a $50,000 basis in the RKS General Partnership on January 1 of the current year, and he owns no other investments. He has a 20% capital interest, a 30% profits interest, and a 40% loss interest in the partnership. Rick does not work in the partn
> Charles and Mary formed CM Partnership on January 1 of the current year. Charles contributed Inventory A with a $100,000 FMV and a $70,000 adjusted basis for a 40% interest, and Mary contributed $150,000 cash for a 60% interest. The partnership operates
> On the advice of his attorney, Dr. Andres, a local pediatrician, contributed several office buildings, which he had previously owned as sole proprietor, to a new Andres Partnership in which he became a one-third general partner. He gave the remaining lim
> Abe and Brenda formed the AB Partnership ten years ago as a general partnership and have been very successful with the business. However, in the current year, economic conditions caused them to lose significant amounts, but they expect the economy and th
> Sandra and John, who are unrelated, each own 50% of Alpha Corporation’s stock and 50% of Beta Corporation’s stock. For five years, Alpha has conducted manufacturing activities and sold machine parts primarily in the eastern United States. Alpha has repor
> Anna, one of your firm’s clients, is a physician who owns and operates her practice through a professional service corporation (PSC). She sees opportunities to grow the PSC, allowing her to serve more patients and generate more profits. Anna, however, ca
> P, R, and T Corporations have filed a consolidated tax return for a number of years using the calendar year as its tax year. Current plans call for P to purchase all of X Corporation’s stock at the close of business on June 30 of the current year from th
> Angela owns all the stock of A, B, and P Corporations. P has owned all the stock of S1 Corporation for six years. The P-S1 affiliated group has filed a consolidated tax return in each of these six years using the calendar year as its tax year. On July 10
> Mark owns all the stock of Red and Green Corporations. In each of the past five years, Red has reported approximately $125,000 of taxable income, and Green has reported NOLs of about $30,000. One-third of Red’s profits come from sales to Green, and their
> On January 10 of the current year, Mary transfers to Green Corporation a machine purchased three years ago for $100,000. On the transfer date, the machine has a $60,000 adjusted basis and a $110,000 FMV. Mary receives all 100 shares of Green stock, worth
> Wildcat Corporation is the parent company of a three-member affiliated group. Wildcat and Badger Corporations have filed consolidated tax returns for several years. Early in the current year, Wildcat purchases Hawkeye Corporation, a start-up business tha
> Alpha and Baker Corporations, accrual method of accounting corporations that use the calendar year as their tax year, have filed consolidated tax returns for several years. Baker, a 100%-owned subsidiary of Alpha, transfers a patent, equipment, and worki
> Define the term SRLY and explain its significance and application to a consolidated tax return.
> An affiliated group has a consolidated NOL for the current year. What factors could determine whether it would be advantageous or disadvantageous for the group to elect to forgo the carryback of the consolidated NOL?
> P, S, and T Corporations comprise a consolidated group. In the current year, P has a profit, while S and T both incur a loss. The net of P’s profit with S’s and T’s losses result in a consolidated NOL. In what years can P, S, and/or T deduct the consolid
> Indicate the tax treatment for each of the following dividends received by a corporation that is a member of an affiliated group filing a consolidated tax return: a. Dividend received from a corporation that is 5%-owned by the group member. b. Dividend
> An affiliated group elects to file a consolidated tax return. Explain why the group’s consolidated capital gain net income or net capital loss is not merely the sum of the members’ separate capital gain net incomes and net capital losses if they were to
> Brooklyn and Bronx Corporations become an affiliated group at the beginning of the current year. Will the corporations obtain a greater charitable contribution deduction for the current year by filing a consolidated tax return or separate tax returns?
> One consolidated group member lends money to another member of its group. Both corporations use the accrual method of accounting. Explain how the lending group member reports its interest income and how the borrowing group member reports its interest exp
> P, S1, and S2 Corporations comprise a consolidated group. The group members use the accrual method of accounting. For each of the following intercompany transactions that occur during the current year, determine the intercompany item and corresponding it
> Ted decides to incorporate his medical practice. He uses the cash method of accounting. On the date of incorporation, the practice reports the following balance sheet: All the current liabilities would be deductible by Ted if he paid them. Ted transfers
> P and S1 Corporations have filed consolidated tax returns for several years. S1 acquires all of S2 Corporation’s stock at the close of business on June 15 of the current year. Which of the following current year transactions are intercompany transactions
> Define the following terms: a. Intercompany transaction. b. Intercompany item. c. Corresponding item. d. Recomputed corresponding item. e. Matching rule. f. Acceleration rule.
> P Corporation owns all the stock of S and T Corporations, and the three corporations elected to file a consolidated tax return for the prior year. What circumstances would allow the corporations to file separate tax returns for the current year?
> Explain why the consolidated return Treasury Regulations are legislative regulations.
> P Corporation owns 100% of the stock of S1 and S2 Corporations. S1 owns 51% of S3 Corporation’s stock, and unrelated persons own the remaining 49%. S2 is a foreign corporation. Explain why the corporations included in a consolidated tax return can differ
> How do the stock ownership requirements for an affiliated group of corporations differ from those for a controlled group?
> P Corporation purchases all of S Corporation’s stock in the current year. Both corporations are includible corporations. S is P’s only subsidiary. Explain their federal income tax return filing alternatives.
> Pamela (an individual) owns 100% of P Corporation’s stock and 100% of R Corporation’s stock. P owns 100% of S Corporation’s stock and 49% of T Corporation’s stock. S owns the remaining 51% of T’s stock. All the corporations are includible corporations an
> Which of the following entities are includible in an affiliated group (if the 80% stock ownership requirements are met)? a. Domestic C corporation. b. Foreign corporation. c. Life insurance company taxed under Sec. 801. d. Limited liability company.
> Jerry transfers to Emerald Corporation property having a $32,000 adjusted basis and a $50,000 FMV in exchange for all of Emerald’s stock worth $15,000 and Emerald’s assumption of a $35,000 mortgage on the property. a. What is the amount of Jerry’s recog
> What minimum level of stock ownership does the IRC require for a corporation to be included in an affiliated group?
> For which of the following tax-related matters can an affiliated group’s parent corporation act as the group’s agent? a. Consent by a subsidiary corporation to the filing of a consolidated tax return. b. Changing a subsidiary corporation’s accounting
> During what time period can an affiliated group elect to file a consolidated tax return? How does it make the election? During what time period can it request to terminate its consolidation?
> The president of your CPA firm’s largest client, a medium-size manufacturing company, advises you that the firm is about to acquire its largest supplier. Both companies have been profitable for the past ten years. The president wants to know what tax ret
> P Corporation owns 100% of the stock of S1 and S2 Corporations. The corporations currently are filing separate tax returns. P and S1 are profitable. S2 is a start-up company that has reported losses for its first two years of operations. S1 eventually wi
> P corporation owns 100% of S Corporation’s stock and the corporations file a consolidated tax return. a. Explain why P must increase the basis in its S stock by S’s taxable income and decrease the basis by the dividends S pays to P. b. Suppose S owns 1
> What is the SRLY-Sec. 382 overlap rule? Explain its significance and application to a consolidated tax return.
> Using the facts from Problem C:8-70 below, calculate the tax liabilities of Flying Gator and T Corporations for 2016. How much larger (or smaller) would be the total of the two separate return tax liabilities if they were to file separate tax returns tha
> P and S Corporations have filed consolidated tax returns for ten years. P and S use the accrual method of accounting, and they use the calendar year as their tax year. P and S report separate return taxable income (before any consolidation adjustments an
> Carol owns all the stock of P Corporation and J Corporation. P operates six automotive service franchises in a metropolitan area. The service franchises have been a huge success in their first three years of operation, and P’s annual taxable income excee
> Barbara transfers to Moore Corporation $10,000 cash and machinery having a $15,000 basis and a $35,000 FMV in exchange for 50 shares of Moore stock. The machinery was used in Barbara’s business, originally cost Barbara $50,000, and is subject to a $28,00
> Angel Macias is considering selling his business (organized as Theta Corporation), which has the following assets and liabilities: Theta’s balance sheet also shows $200,000 of accounts payable and $400,000 in bank loans. No NOL carryov
> Tom Smith owns 100% of Alpha Corporation’s single class of stock, and Alpha owns 100% of Beta Corporation’s single class of stock. Alpha and Beta have filed separate tax returns for a number of years. Neither corporation has any NOL carryovers. Although
> Diversified Corporation operates a successful bank with ten branches. Al, Bob, and Cathy created Diversified six years ago and own all the Diversified stock in equal shares. Diversified has constructed in downtown Metropolis a new building that houses a
> ABC Corporation is the object of a hostile takeover bid by XYZ Corporation. ABC incurs a total of $400,000 in attorneys’ fees, accounting fees, and printing costs for information mailed to ABC shareholders in its effort to defeat the XYZ takeover bid. XY
> Albert Corporation is a profitable publicly traded corporation. None of its shareholders owns more than 1% of its outstanding shares. On December 31, 2016, Albert exchanged $8 million of its stock for all the stock of Turner Corporation as part of a merg
> Murray Corporation’s stock is owned by about 1,000 shareholders, none of whom own more than 1% of the outstanding shares. Pursuant to a tender offer, Said purchased all the Murray stock for $7.5 million cash at the close of business on December 31, 2016.
> For each of the following transactions, indicate the reorganization type (e.g., Type A, Type B, etc.). Assume all common stock is voting. a. Anderson and Brown Corporations exchange their assets for all the single class of stock of newly created Computer
> Discuss the tax consequences of the following corporate reorganizations to the parties to the reorganization: a. Adobe Corporation and Tyler Corporation merge under Florida law. Tyler shareholders receive for their Tyler stock $300,000 of Adobe common s
> Jim owns 80% of Gold Corporation stock. He transfers a business automobile to Gold in exchange for additional Gold stock worth $5,000 and Gold’s assumption of both his $1,000 automobile debt and his $2,000 education loan. The automobile originally cost J
> Identify the type of each of the following reorganizations. a. Briggs Corporation was originally incorporated in Georgia but now conducts most of its business in Florida. The firm transfers substantially all its Georgia assets to a new Florida corporati
> Milan Corporation is owned by four shareholders. Andy and Bob each own 40% of the outstanding common and preferred stock. Chris and Doug each own 10% of the outstanding common and preferred stock. The shareholders want to retire the preferred stock that
> Master Corporation plans a recapitalization. Explain the tax consequences of each of the following unrelated transactions: a. Holders of Class A nonvoting preferred stock exchange their stock for newly issued common stock. Master paid $300,000 of cash d
> Jean Corporation has two divisions— home cookware and electric home appliances. Bill and Bob Jean own all of Jean Corporation’s single class of stock. Bill, the older brother, owns 70% of the Jean stock, and Bob owns t
> Ruby Corporation has 100 shares of common stock outstanding. Fred, a shareholder of Ruby, exchanges his 25% interest in the Ruby stock for Garnet Corporation stock and securities. Ruby purchased 80% of the Garnet stock ten years ago for $25,000. At the t
> Parent Corporation has owned all 100 shares of Subsidiary Corporation common stock since 2010. Parent has been in the business of manufacturing and selling light fixtures, and Subsidiary has been in the business of manufacturing and selling light bulbs.
> Parent Corporation has been in the business of manufacturing and selling trucks for the past eight years. Its subsidiary, Diesel Corporation, has been in the business of manufacturing and selling diesel engines for the past seven years. Parent acquired c
> Light Corporation is owned equally by two individual shareholders, Bev and Tarek. The shareholders no longer agree on how to manage Light’s operations. Tarek agrees to a plan whereby $500,000 of Light’s assets (having an adjusted basis of $350,000) and $
> Road Corporation is owned equally by four shareholders. It conducts activities through two operating divisions: the road construction division and the meat packing division. To segregate the two activities into distinct corporations, Road transfers the a
> On January 30 of the current year, Ashton Corporation purchased from Cathy 10% of Todd Corporation stock for $250,000 in cash. On May 30 of the following year, Andrea and Bill each exchange one-half of the remaining 90% of the Todd stock for $1.2 million
> Nora transfers to Needle Corporation depreciable machinery originally costing $18,000 and now having a $15,000 adjusted basis. In exchange, Nora receives all 100 shares of Needle stock having an $18,000 FMV and a three-year Needle note having a $4,000 FM
> Barbara organizes Blue LLC on May 17 of the current year. What is the entity’s default tax classification? Are any alternative classification(s) available? If so, (1) how does Barbara elect the alternative classification(s) and (2) what are the tax conse
> Austin Corporation exchanges $1.5 million of its voting common stock for all of Travis Corporation’s single class of stock. Ingrid, who owns all the Travis stock, has a $375,000 stock basis. Immediately after the reorganization, Ingrid owns 25% of the 15
> Trent Corporation’s single class of stock is owned equally by Juan and Miguel, who are unrelated. Juan has a $125,000 basis in his 1,000 Trent shares, and Miguel has a $300,000 basis in his 1,000 Trent shares. In a single transaction, Adams Corporation e
> Allen Corporation plans to acquire all the stock in Taylor Corporation in a stock-for-stock exchange. Which of the following transactions will qualify as a Type B reorganization? a. All of Taylor’s common stock is exchanged for $1 million of Allen votin
> As part of a Type C reorganization, Tulsa Corporation exchanges assets having a $300,000 FMV and a $175,000 adjusted basis for $250,000 of Akron Corporation voting common stock and Akron’s assumption of $50,000 of Tulsa’s liabilities. Tulsa liquidates, w
> As part of a Type C reorganization, Ash Corporation exchanges $250,000 of its voting common stock and $50,000 of its bonds for all of Texas Corporation’s assets. Texas liquidates, with each of its two shareholders receiving equal amounts of the Ash stock
> Arnold Corporation plans to acquire all the assets of Turner Corporation in an asset-for-stock exchange. Turner’s assets have a $600,000 adjusted basis and a $1 million FMV. Which of the following transactions qualify as a Type C reorganization (assuming
> Armor Corporation exchanges $1 million of its common stock and $300,000 of Armor bonds for all of Trail Corporation’s outstanding stock. As part of the same transaction, Trail then merges into Armor, which receives assets having a $1.3 million FMV and an
> In a merger under state law, Anchor Corporation acquires all the assets of Tower Corporation. Tower’s assets have a $5 million FMV and a $2.2 million adjusted basis. Assuming Tower liquidates, which of the following transactions qualify as a Type A reorg
> Turbo Corporation has one million shares of common stock and 200,000 shares of nonvoting preferred stock outstanding. Pursuant to a merger under state law, Ace Corporation exchanges its common stock worth $15 million for the Turbo common stock and pays $
> Springs Corporation has developed a nature park at the site of Blue Springs. Because Newberry Corporation wants to develop several other springs in the area, Newberry wants to merge with Springs under Florida law. Newberry offers $650,000 of nonvoting pr
> Joe, Karen, and Larry form Gray Corporation. Joe contributes land (a capital asset) having an $8,000 adjusted basis and a $15,000 FMV to Gray in exchange for Gray ten-year notes having a $15,000 face value. Karen contributes equipment (Sec. 1231 property
> Yong owns 100% of Theta Corporation stock having a $600,000 adjusted basis. As part of the merger of Theta into Alpha Corporation, Yong exchanges his Theta stock for $750,000 cash and Alpha common stock having a $3 million FMV. Yong retains a 60% interes
> Silvia exchanges all her Theta Corporation stock (acquired August 1, 2013) for $300,000 of Alpha Corporation voting common stock pursuant to Theta’s merger into Alpha. Immediately after the stock-for-stock exchange Silvia owns 25% of Alpha’s 2,000 outsta
> In a merger in which it subsequently liquidates, Thomas Corporation transfers to Andrews Corporation all its assets and $100,000 of its liabilities in exchange for Andrews voting common stock, having a $600,000 FMV. Thomas’s basis in its assets is $475,0
> Alpha Corporation purchases all of Theta Corporation’s stock for $300,000 cash. Alpha makes a timely Sec. 338 election. Theta’s balance sheet at the close of business on the acquisition date is as follows: a. What is
> J.S. Bachman owns 100% of Legato Corporation’s stock, having a $350,000 basis. On December 31 of the current year, Legato Corporation reported the following balance sheet: Staccato Corporation wishes to purchase, for cash, 80% of Legat
> Gator Corporation is considering the acquisition of Bulldog Corporation’s stock in exchange for cash. Two options are under review: (1) Gator purchases the assets from Bulldog for $1.4 million or (2) Gator purchases the Bulldog stock fo
> Alpha Corporation purchases 20% of Theta Corporation stock from Milt on August 10 of the current year. Alpha purchases an additional 30% of the stock from Nick on November 15 of the current year. Alpha purchases the remaining 50% of the Theta stock from
> Alpha Corporation purchased 20% of Theta Corporation’s stock on each of the following dates in the current year: January 2, April 1, June 1, October 1, and December 31. a. Has a qualified stock purchase occurred? If it so desires, when must Alpha make t
> At the beginning of the current year, Allegro Corporation acquires all of Tempo Corporation’s stock in a Type B reorganization. At the time of the acquisition, Tempo’s stock has a $900,000 FMV, and Tempo has a $115,000 net operating loss (NOL) carryover.
> At the close of business on May 31, 2017, Alaska Corporation exchanges $2 million of its voting common stock for all the noncash assets of Tennessee Corporation. Tennessee uses its cash to pay off its liabilities and then liquidates. Tennessee and Alaska
> Sara transfers land (a capital asset) having a $30,000 adjusted basis to Temple Corporation in a Sec. 351 exchange. In return, Sara receives the following consideration: Consideration …………....…………....…………....….FMV 100 shares of Temple common stock………….
> Adolph Coors Co. transferred part of its assets to ACX Technologies Corporation in exchange for all of ACX’s stock. The transferred assets included its aluminum unit, which makes aluminum sheet; its paper packaging unit, which makes consumer-products pac
> Rodger Powell owns all the stock in Fireside Bar and Grill Corporation in Pittsburgh. Now that he has turned 65, Rodger wants to sell his business and retire to sunny Florida. Karin Godfrey, a long-time bartender at Fireside, offers to purchase all the c
> Johnson & Johnson announced that it had entered into a merger agreement with Alza Corporation, a research-based pharmaceutical company and a leader in drug delivery technologies. In a nontaxable reorganization, Alza shareholders were offered a fixed exch
> Why do some taxpayers secure an advance ruling for a proposed reorganization transaction?
> What is a plan of reorganization? Does such a plan need to be reduced to writing?
> Explain why Sec. 382 will not be an obstacle to the use of NOL carryovers following an acquisition if the value of the old loss corporation is large relative to its NOL carryovers.
> What restrictions are placed on the acquisition and use of a loss corporation’s tax attributes?
> Which types of reorganizations (acquisitive, divisive, and other) permit the carryover of tax attributes from a target or transferor corporation to an acquiring or transferee corporation?
> Explain why a transaction might satisfy the letter of Sec. 368 for a reorganization yet fail to be treated as a reorganization.
> In a family corporation, how can a recapitalization be used to transfer voting control tax-free from a retiring senior generation to an upcoming junior generation?
> Jerry transfers property with a $28,000 adjusted basis and a $50,000 FMV to Texas Corporation for 75 shares of Texas stock. Frank, Jerry’s father, transfers property with a $32,000 adjusted basis and a $50,000 FMV to Texas for the remaining 25 shares of
> What is a recapitalization? What types of recapitalizations are nontaxable?
