Chapter 19 Corporate Formation, Reorganization, and Liquidation

43. [LO 2] {planning} This year Jack O. Lantern incurred a $60,000 loss on the worthlessness of his stock in the Creepy Corporation (CC). The stock, which Jack purchased in 2005, met all of the §1244 stock requirements at the time of issue. Jack’s wife, Jill, also incurred a $75,000 loss on the sale of Eerie Corporation (EC) stock that she purchased in July 2005 and which also satisfied all of the §1244 stock requirements at the time of issue. Both corporations are operating companies.

a. How much of the losses incurred on the two stock sales can Jack and Jill deduct this year, assuming they do not have capital gains in the current or prior years?

b. Assuming they did not engage in any other property transactions this year, how much of a net capital loss will carryover to next year for Jack and Jill?

c. What would be the tax treatment for the losses if Jack and Jill reported only $60,000 of taxable income this year excluding the securities transactions?

d. What tax planning suggestions can you offer the Lanterns to increase the tax benefits of these losses?

44. [LO 2] Breslin, Inc. made a capital contribution of investment property to its 100 percent-owned subsidiary, Crisler Company. The investment property had a fair market value of $3,000,000 and a tax basis to Breslin of $2,225,000.

a. What are the tax consequences to Breslin, Inc. on the contribution of the investment property to Crisler Company?

b. What is the tax basis of the investment property to Crisler Company after the contribution to capital?

45. [LO 3] {research} On February 4, 2013, Verint Systems Inc. acquired Comverse Technology Inc. in a tax-deferred acquisition. The Form 8-K for Comverse (ticker CMVT, cik 803014) describes the transaction and was filed with the SEC on August 13, 2012. You can access the Form 8-K at the SEC’s Investor website (http://www.sec.gov/edgar/searchedgar/webusers.htm). Read “Item 1.01, Entry into a Material Definitive Agreement” and determine which form of merger was used to affect the acquisition.

46. [LO 3] {research} On March 1, 2013, Leucadia National Corporation acquired Jefferies Group LLC. in a tax-deferred acquisition. The Form 8-K for Jefferies (ticker JEF, cik 1084580) describes the transaction and was filed with the SEC on November 13, 2012. You can access the Form 8-K at the SEC’s Investor website (http://www.sec.gov/edgar/searchedgar/webusers.htm). Read “Item 1.01, Entry into a Material Definitive Agreement” and determine which form of merger was used to