Question: Sara transfers land (a capital asset) having

> 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

> 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. Travi

> 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

> 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?

> When does the distributing corporation recognize gain or loss on the distribution of stock or securities of a controlled corporation to its shareholders?

> Under what circumstances is the distribution of a controlled corporation’s stock or securities nontaxable to the distributing corporation’s shareholders? What events trigger the recognition of gain or loss by the shareholders?

> Stock in a controlled subsidiary corporation can be distributed tax-free to the distributing corporation’s shareholders under Sec. 355. Explain the difference between such a distribution and a divisive Type D reorganization.

> Compare and contrast the requirements for, and the tax treatment of, the spinoff, split-off, and split-up forms of divisive Type D reorganizations.

> Explain the structure of a triangular reorganization. What advantages would a triangular reorganization provide the acquiring corporation?

> In a tender offer, Alpha Corporation wants to exchange its voting common stock for all of Theta Corporation’s single class of stock. Only 85% of Theta’s shareholders agree to tender their shares. After the tender, what options exist for Alpha to acquire

> Alpha Corporation purchased for cash a 5% interest in Theta Corporation stock. After buying the stock and examining Theta’s books, Alpha’s management wants to make a tender offer to acquire the remaining Theta stock in exchange for Alpha voting stock. Ca

> Explain the circumstances in which cash and other property can be used in a Type B reorganization.

> What is the difference between an acquisitive Type C reorganization and an acquisitive Type D reorganization?

> For the last three years, Lucy and Marvin each have owned 50 of the 100 outstanding shares of Lucky Corporation stock. Lucy transfers property having an $8,000 basis and a $12,000 FMV to Lucky for an additional ten shares of Lucky stock. How much gain or

> Explain why an acquiring corporation might be prohibited from using cash as part of the consideration paid in a Type C reorganization.

> How does the IRS interpret the “substantially all” asset requirement for a Type C reorganization?

> What are the advantages of a Type C asset-forstock reorganization as opposed to a Type A merger reorganization? The disadvantages?

> How does the IRS interpret the continuity of interest doctrine for a Type A reorganization?

> Compare the types of consideration that can be used in Type A, B, and C reorganizations.

> How is the basis in nonboot stock and securities received by a shareholder determined? How is the basis in boot property determined?

> Evaluate the following statement: Individual shareholders who recognize gain as the result of receiving boot in a corporate reorganization generally prefer to report capital gain, whereas corporate shareholders generally prefer to report dividend income.

> A shareholder receives stock and cash in an acquisitive reorganization. The shareholder recognizes a gain because of the boot (cash) received. What rules determine whether the character of the shareholder’s recognized gain is dividend income or capital g

> Which of the following events as part of an acquisitive reorganization require the target corporation to recognize gain? Assume in all cases that the target corporation liquidates in the reorganization. a. Transfer of appreciated target corporation asse

> Compare the tax consequences of a taxable asset acquisition and a Type C asset-for-stock reorganization, based on the following factors: a. Consideration used to effect the transaction. b. Recognition of gain or loss by the target corporation on the as

> For the last five years, Ann and Fred each have owned 50 of the 100 outstanding shares of Zero Corporation stock. Ann transfers land having a $10,000 basis and a $25,000 FMV to Zero for an additional 25 shares of Zero stock. Fred transfers $1,000 cash to

> a. Holt Corporation acquires all the stock of Star Corporation and makes a timely Sec. 338 election. The adjusted grossed-up basis of the Star stock is $2.5 million. The FMV of tangible assets on Star’s balance sheet is $1.8 million. How are the new base

> Why might a parent corporation make a Sec. 338 election after acquiring a target corporation’s stock? When would such an election not be advisable?

> What tax and nontax advantages and disadvantages accrue when an acquiring corporation purchases all of a target corporation’s stock for cash and subsequently liquidates the target corporation?

> What tax advantages exist for a corporate buyer when it acquires the assets of another corporation in a taxable transaction? For a seller when he or she exchanges stock in a taxable transaction? In a nontaxable transaction?

> From the standpoint of the target corporation shareholders, what is the advantage of a taxable stock acquisition by a purchaser corporation compared to the purchaser’s acquiring all the target’s assets in a taxable transaction followed by a liquidating d

> Does the receipt of a favorable advance ruling provide the taxpayer with a guarantee that the IRS will follow the ruling if it audits the completed transaction?

> Some acquisitive transactions may be characterized as either a Type C or a Type D reorganization. Which reorganization provision controls if the two types overlap?

> How does the IRS interpret the continuity of business enterprise requirement for a Type A reorganization?

> Sid Kess, a long-time tax client of yours, has decided to acquire the snow blower manufacturing firm owned by Richard Smith, one of his closest friends. Richard has a $200,000 adjusted basis in his Richard Smith Snow Blowers (RSSB) stock. Sid Kess Enterp

> Bailey Corporation owns a number of automotive parts shops. Bill Smith owns an automotive parts shop that has been in existence for 40 years and has competed with one of Bailey’s branches. Bill is considering retiring and would like to

> Tom incorporates his sole proprietorship as Total Corporation and transfers its assets to Total in exchange for all 100 shares of Total stock and four $10,000 interest-bearing notes. The stock has a $125,000 FMV. The notes mature consecutively on the fir

> Sarah plans to invest $1 million in a business venture that will last five years. She is debating whether to operate the business as a C corporation or a sole proprietorship. If a C corporation, she will liquidate the corporation at the end of the five-y

> One way to compare the accumulation of income by alternative business entity forms is to use mathematical models. The following models express the investment after-tax accumulation calculation for a particular entity form: Flow-through entities and sole

> Parent Corporation owns 85% of the common stock and 100% of the preferred stock of Subsidiary Corporation. The common stock and preferred stock have adjusted bases of $500,000 and $200,000, respectively, to Parent. Subsidiary adopts a plan of liquidation

> Parent Corporation has owned 60% of Subsidiary Corporation’s single class of stock for a number of years. Tyrone owns the remaining 40% of the Subsidiary stock. On August 10 of the current year, Parent purchases Tyrone’s Subsidiary stock for cash. On Sep

> Union Corporation is owned equally by Ron and Steve. Ron and Steve purchased their stock several years ago and have adjusted bases for their Union stock of $15,000 and $27,500, respectively. Each shareholder receives two liquidating distributions. The fi

> Bell Corporation is 100% owned by George, who has a $400,000 basis in his Bell stock. Bell’s operations have been unprofitable in recent years, and it has incurred small NOLs. Its operating assets currently have a $300,000 FMV and a $500,000 adjusted bas

> Art owns 80% of Pueblo Corporation stock, and Peggy owns the remaining 20%. Art and Peggy have $320,000 and $80,000 adjusted bases, respectively, for their Pueblo stock. Pueblo owns the following assets: cash, $25,000; inventory, $150,000 FMV and $100,00