Law question data bank

639.#1
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.

640.#2
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.

641.#3
Which of the following statements is true concerning all types of tax-free corporate reorganizations?

a. Assets are transferred from one corporation to another.
b. Stock is exchanged with shareholders.
c. Liabilities that are assumed when cash is also used as consideration will be treated as boot.
d. Corporations and shareholders involved in the reorganization may recognize gains but not losses.
e. None of the above statements is true.

642.#4
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.

643.#5
Bobcat Corporation redeems all of Zeb’s 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash. Zeb’s basis in his 20% interest in Bobcat is $100,000 and the stock’s value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $200,000 and Van’s are $75,000. How does Zeb treat this transaction for tax purposes?

a. No gain is recognized by Zeb in this reorganization.
b. Zeb reports a $50,000 recognized dividend.
c. Zeb reports a $50,000 recognized capital gain.
d. Zeb reports a $40,000 recognized dividend and a $10,000 capital gain.
e. Not enough information is available to determine proper treatment.

644.#6
Yoko purchased 10% of Toyger Corporation’s stock six years ago for $70,000. In a transaction qualifying as a “Type C” reorganization, Yoko received $50,000 cash and 8% of Angora Corporation’s stock (valued at $100,000) in exchange for her Toyger stock. Prior to the reorganization, Toyger had $200,000 accumulated earnings and profits and Angora had $300,000. How does Yoko treat the exchange for tax purposes?

a. As a recognized $50,000 long-term capital gain.
b. As a $50,000 dividend.
c. As a $20,000 dividend and a $30,000 capital gain.
d. As a $30,000 dividend and a $20,000 capital gain.
e. None of the above.

645.#7
Korat Corporation and Snow Corporation enter into an acquisitive “Type D” reorganization. Xin currently holds a 20-year, $10,000 Snow bond paying 4% interest. There are 8 years until the bond matures. In exchange for his Snow bond, Xin receives an 8 year $16,000 Korat bond paying 2.5% interest. Xin thinks this is fair because he will still receive $400 of interest each year and both bonds mature on the same date. How does Xin treat this transaction on his tax return?

a. Xin recognizes no gain or loss on the exchange of bonds.
b. Xin recognizes $750 gain each year for the next 8 years.
c. Xin recognizes $6,000 capital gain.
d. Xin recognizes $6,000 ordinary gain.
e. None of the above.

646.#8
Mars Corporation merges into Jupiter Corporation by exchanging all of its assets for 300,000 shares of Jupiter stock valued at $2 per share and $100,000 cash. Wanda, the sole shareholder of Mars, surrenders her Mars stock (basis $900,000) and receives all of the Jupiter stock transferred to Mars plus the $100,000. How does Wanda treat this transaction on her tax return?

a. Wanda recognizes a $100,000 gain. Her Jupiter stock basis is $900,000.
b. Wanda recognizes a loss of $100,000. Her Jupiter stock basis is $800,000.
c. Wanda recognizes a $100,000 gain. Her Jupiter stock basis is $700,000.
d. Wanda realizes a $200,000 loss of which $100,000 is recognized. Her Jupiter stock basis is $1 million.
e. None of the above.

647.#9
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.

648.#10
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.

649.#11
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.

650.#12
Which of the following statements is true regarding a “Type A” reorganization?

a. At least 80% of the acquiring corporation’s consideration must be voting stock but the other 20% can be cash or preferred stock.
b. The target shareholders must receive a proprietary interest in the acquiring corporation. This means that target shareholders must receive at least 40% of acquiring’s stock.
c. Substantially all of the target’s assets must be transferred to the acquiring corporation. This means at least 90% of the net asset value.
d. Assumption of all liabilities for a “Type A” reorganization includes unknown and contingent liabilities.
e. None of the above statements is true.

651.#13
Ocelot Corporation is merging into Tiger Corporation under state law requirements. Ocelot transfers $300,000 of assets to Tiger in exchange for 30,000 shares and $200,000 in cash. Ocelot transfers the Tiger stock, $200,000 cash, and all of its liabilities ($50,000) to its shareholder, Van, in exchange for all of his Ocelot stock (basis $100,000). Ocelot then liquidates. How will this transaction be treated for tax purposes?

a. Since this qualifies as a “Type A” reorganization, Van recognizes no gain.
b. Since this qualifies as a “Type C” reorganization, Van recognizes a $200,000 gain.
c. Since this qualifies as a “Type A” reorganization, Van recognizes a $150,000 gain.
d. Since this does notqualify as a reorganization, Van recognizes a $350,000 gain.
e. None of the above.

652.#14
Red Corporation redeems all of its common and preferred stock. Red then exchanges this redeemed stock with Blue Corporation for 40% of Blue’s voting common stock. The Blue stock is distributed to the Red shareholders. After the transaction, both Red and Blue corporations still exist. The former Red shareholders are now shareholders of Blue. This transaction qualifies as a(n):

a. “Type A” reorganization.
b. “Type B” reorganization.
c. “Type C” reorganization.
d. Acquisitive “Type D” reorganization.
e. Taxable event.

653.#15
Which of the following statements regarding “Type B” reorganizations is true?

a. Since a parent-subsidiary relationship is created, the tax attribute carryover limitations are problematic.
b. The acquisition of liabilities can cause problems when the liabilities of the target are greater than 20% of the total consideration and the acquiring owned target stock prior to the “Type B” reorganization.
c. The acquisition of common and preferred target stock by the acquiring can be directly from the shareholders or from the target corporation.
d. The acquiring corporation must distribute the target stock it obtains to its shareholders. The acquiring shareholders do not always have to turn in acquiring stock in exchange for the target stock.
e. All of the above statements are true.

654.#16
Siamese Corporation purchased 25% of Persian Corporation 8 years ago for $250,000. Siamese now wants to acquire the remaining 75% of the Persian stock. Siamese acquires 70% of Persian’s stock (worth $900,000) by exchanging its common voting stock with the shareholders of Persian. Since 5% of the Persian shareholders are not interested in being common shareholders of Siamese, they retain their shares. This transaction qualifies as what type of reorganization?

a. “Type A” reorganization.
b. “Type B” reorganization.
c. “Type C” reorganization.
d. Acquisitive “Type D” reorganization.
e. A taxable exchange.

655.#17
GreenCo transfers $400,000 of its common voting stock and $50,000 cash to CurryCo in exchange for 80% of CurryCo’s assets. CurryCo uses all of its remaining assets and the cash received from GreenCo to pay its liabilities. CurryCo then distributes the GreenCo stock to its shareholders in exchange for all of their shares of CurryCo. Lastly, CurryCo liquidates. This restructuring qualifies as a:

a. “Type A” reorganization.
b. “Type B” reorganization.
c. “Type C” reorganization.
d. “Type D” reorganization.
e. Taxable exchange.

656.#18
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.

657.#19
The Long Corporation has $500,000 of assets (basis of $350,000) and liabilities of $125,000. ShortCo acquires Long’s assets and $100,000 of liabilities by exchanging $400,000 of its voting stock. Long distributes the ShortCo stock and remaining liabilities to its shareholder in exchange for her Long stock (basis of $275,000) and then it liquidates. Which, if any, of the following statements is correct?

a. This restructuring qualifies as a “Type A” reorganization with no recognized gains or losses.
b. This restructuring qualifies as a “Type C” reorganization with no recognized gains or losses.
c. This qualifies as either a “Type A” or “Type C” and the shareholder has a $25,000 recognized gain.
d. The restructuring is taxable because liabilities cannot be distributed to shareholders in a tax-free reorganization.
e. None of the above statements is correct.

658.#20
North Corporation acquires 90% of South’s assets (basis of $700,000) by exchanging $600,000 of its voting stock and assuming $300,000 of South’s liabilities. South distributes North stock, its remaining $100,000 in assets, and associated $40,000 in liabilities to its shareholder in exchange for his South stock (basis of $500,000). South then liquidates. How will this transaction be treated for tax purposes?

a. As a “Type A” reorganization and South recognizes $100,000 of gain.
b. As a “Type A” reorganization and South recognizes $60,000 of gain.
c. As a “Type C” reorganization and the shareholder recognizes $60,000 of gain.
d. As a “Type C” reorganization and the shareholder recognizes $100,000 of gain.
e. As a taxable transaction.

659.#21
Rabbit Corporation and Fox Corporation would like to merge into one company. Rabbit’s only asset is a nontransferable chemical process that has a value of $300,000 and Rabbit has liabilities of $100,000. Fox has the manufacturing plant and experience in the production of Rabbit’s chemical process. Its manufacturing plant has a value of $900,000 with a mortgage of $200,000. Which type of reorganization would be the most appropriate for Rabbit and Fox?

a. “Type A” consolidation reorganization.
b. “Type B” reorganization.
c. “Type C” reorganization.
d. Acquisitive “Type D” reorganization.
e. None of the above is appropriate.

660.#22
In which type of divisive corporate reorganization do the shareholders receive stock in another corporation without relinquishing any of their stock in the original corporation?

a. “Type A” consolidation reorganization.
b. “Type D” split-up reorganization.
c. “Type D” split-off reorganization.
d. “Type D” spin-up reorganization.
e. Some other type of reorganization.

661.#23
Dirty Corporation has owned two chemical manufacturing facilities for the last 20 years. One facility is located in Oklahoma while the other is in Oregon. There have been some environmental investigations at the Oregon facility. Therefore, Dirty creates a new corporation, called Clean, and places the assets of the Oregon plant into Clean in exchange for all of Clean’s stock. Dirty distributes this stock proportionately to its shareholders in exchange for 40% of their Dirty stock. How will this transaction be treated for tax purposes?

a. As a split-up “Type D” reorganization.
b. As a split-off “Type D” reorganization.
c. As a spin-off “Type D” reorganization.
d. This transaction does not qualify as a reorganization, because Dirty does not have two active lines of business.
e. None of the above.

662.#24
Contra Corporation is owned 50% by Terry and 50% by Sammy. Due to news articles damaging Contra’s reputation, Terry and Sammy decide to liquidate Contra, which has been in existence for 4 years. They create Alpha and Beta Corporations to receive all of the manufacturing assets of Contra’s two picture frame plants. Alpha receives the urban plant manufacturing assets and Beta receives the country manufacturing plant. Terry receives 60% Alpha stock and 40% of the Beta stock and Sammy receives 40% Alpha stock and 60% of the Beta stock. Terry and Sammy turn in their Contra stock and Contra then liquidates. Assuming all other requirements are met, how will this transaction be treated for tax purposes?

a. As a taxable transaction.
b. As a “Type A” deconsolidation.
c. As a “Type D” split-off reorganization.
d. As a “Type D” split-up reorganization.
e. None of the above.

663.#25
Vintage Corporation has four shareholders: Robin, Quinton, Paula, and Orvil. Paula and Orvil started the business 10 years ago, and Robin and Quinton bought their stock 6 years ago. Vintage’s historical business is buying and selling antiques. When Robin and Quinton joined Vintage, it added a new business, trading in collectibles.

Lately, there has been a disagreement about the future of Vintage. Orvil and Quinton are not interested in collectibles, but Robin and Paula enjoy this part of the business. To resolve this issue, Paula suggests that two new corporations be created, Antique and Collectible. Antique would receive all of the assets of the antique part of the business, and Collectible would receive all of the assets of the collecting part of Vintage. All of the stock of these two corporations would be received by Vintage and distributed to the appropriate shareholders. Vintage would then terminate.

a. The transaction qualifies as a spin-off “Type D” reorganization.
b. The transaction qualifies as a split-off “Type D” reorganization.
c. The transaction qualifies as a split-up “Type D” reorganization.
d. The transaction is taxable.
e. None of the above.

664.#26
ScottishCo is owned by Gordon Bryson and his four nieces and nephews. Gordon owns all the voting stock. He wants to relinquish control; accordingly, ScottishCo redeems all of Gordon’s voting common stock and issues him preferred stock and $50,000 in bonds. The nonvoting preferred shares owned by the nieces and nephew are exchanged for voting common stock. Which of the following statements is correct?

a. None of this transaction is taxable because it qualifies as a “Type E” reorganization.
b. The exchange of common for preferred is not taxable but the exchange of preferred stock for common stock is taxable.
c. The exchange of common stock for a bond is taxable.
d. All of these transactions are taxable.
e. None of the above statements is correct.

665.#27
Qadira exchanges 40% of her common stock for 80% of newly issued preferred stock in the Pinto Corporation. There was no Pinto preferred stock previously outstanding, and Qadira received only stock. The other 20% of the preferred stock was received by another shareholder, solely in exchange for 10% of his common stock in Pinto. How is this transaction treated for tax purposes?

a. This is a taxable transaction.
b. This transaction qualifies as a “Type E” reorganization.
c. This transaction qualifies as a “Type B” reorganization.
d. This transaction qualifies as like-kind exchange.
e. None of the above.

666.#28
Western, Inc. is a corporation located in California. In June of the current year, Western moves to Georgia and changes its name to Southern Corporation. Its sole shareholder, Dharma, exchanges all of her stock in Western and receives all of the stock in Southern.

a. This transaction qualifies as a “Type F” reorganization.
b. This transaction qualifies as a “Type E” reorganization.
c. This move has no tax significance for Federal purposes.
d. This is treated as a liquidation of Western and incorporation of Southern. Thus, gain can be recognized on the liquidation of Western.
e. None of the above.

667.#29
Loser Corporation has outstanding bonds of $800,000 and assets valued at $600,000. It also has a $200,000 NOL and capital loss carryovers of $160,000. Loser is solely owed by Dai Won. Loser is restructured and the successor company is LouderCo. Which of the following statements is false?

a. This transaction qualifies as a “Type G” reorganization.
b. LouderCo can utilize the full amount of Loser’s NOL and capital loss carryover, if it elects to reduce the basis in the transferred depreciable assets by the amount of the debt relief it receives.
c. Dai Won must receive a controlling interest in LouderCo for the restructuring to qualify as a tax-free reorganization.
d. The bondholders of Loser become shareholders of LouderCo.
e. All of the above statements are true.

668.#30
In which type of reorganization could bonds and other liabilities be exchanged for stock and not be treated as boot?

a. A “Type G” reorganization.
b. A “Type E” reorganization.
c. An acquisitive “Type D” reorganization.
d. A “Type A” consolidation.
e. None of the above.

669.#31
Burmese Corporation is interested in acquiring Javanese Corporation by transferring 30% of its stock for all of Javanese’s assets valued at $500,000 (basis of $150,000) and its $200,000 of liabilities. Javanese has created $50,000 in general business research credits which it cannot use. Javanese concentrates on pharmaceutical research whereas Burmese manufactures sun glasses. Burmese uses a discount factor of 8% and the Federal applicable rate is 4%. Javanese will terminate after the restructuring. How will this transaction be treated for tax purposes?

a. Since Javanese has liabilities in excess of its basis, this excess will be taxable to Javanese.
b. The most that Burmese can use of the general business credits in any year is $4,200.
c. This transaction could qualify as a “Type A” or a “Type C” reorganization.
d. All of the above.
e. None of the above.

670.#32
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.

671.#33
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 will 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.

672.#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.

673.#35
Burl Corporation has assets with a value of $500,000 (basis of $300,000) and liabilities of $350,000. Wood Corporation is considering merging with Burl by exchanging 30% of its voting stock and $50,000 cash for Burl.

a. This restructuring can qualify as a “Type A” merger only if Wood acquires all of Burl’s assets and liabilities.
b. This restructuring can qualify as a “Type B” only if Wood acquires substantially all of Burl’s assets.
c. This restructuring can qualify as a “Type C” only if Wood acquires none of Burl’s liabilities.
d. This restructuring cannot qualify as a tax-free reorganization for Burl because its liabilities are in excess of the basis of its assets.
e. None of the above.

674.#36
Weaver Corporation has net assets valued at $800,000 and an NOL of $250,000. On September 30 of the current year, Weaver is acquired by Loom Corporation, a calendar year taxpayer, in a restructuring qualifying as a tax-free reorganization. Weaver shareholders receive 30% of Loom’s shares in exchange for all of their Weaver stock. Assuming that the Federal long-term tax-exempt rate is 8%, what is the maximum amount of Weaver’s NOL available to Loom in the current year?

a. $250,000.
b. $240,000.
c. $75,000.
d. $64,000.
e. None of the above.

675.#37
Heart Corporation has net assets valued at $1 million and an NOL of $250,000. On December 31 of last year, Heart is acquired by Brain Corporation, a calendar year taxpayer, in a restructuring qualifying as a tax-free reorganization. Heart shareholders receive 45% of Brain’s shares in exchange for all of the Heart stock. Assuming that the Federal long-term tax-exempt rate is 5% and Brain’s discount factor is 10%, what is the maximum amount that Brain can use of Heart’s NOL this year?

a. $12,500.
b. $80,000.
c. $100,000.
d. $250,000.
e. None of the above.

676.#38
YesCo acquired NoCo on January 1 of this year for $1 million when the Federal long-term tax-exempt rate was 3%. Two of the tax attributes that YesCo found appealing are NoCo’s NOL of $500,000 and its negative E & P of $300,000. Before applying any of NoCo’s tax benefits, YesCo has taxable income of $35,000 and E & P of $350,000. YesCo pays a dividend of $100,000 to its shareholders. How much of this dividend is taxable?

a. $5,000 is taxable.
b. $50,000 is taxable.
c. $55,000 is taxable.
d. $100,000 is taxable.
e. None of the above.

677.#39
Miro Corporation exchanged 10% of its stock with Lobo shareholders for all of the Lobo stock outstanding. At the time of the acquisition by Miro, the fair market value of Lobo was $1.5 million, and the Federal long-term tax-exempt rate was 5%. In the current year, Miro has $600,000 of taxable income. Lobo has excess credits from prior years amounting to $40,000. What is Miro’s Federal income tax for the year, if it is in the 34% tax bracket?

a. $204,000.
b. $178,000.
c. $96,000.
d. $55,000.
e. $27,540.

678.#40
Which of the following statements is false regarding the tax benefits from a loss corporation’s carryovers that are taken in the current year?

a. The § 382 yearly limitation is applied first to the loss carryovers (built-in loss, capital loss, or NOL) and then the credits (foreign, business, or minimum tax).
b. The § 382 yearly limitation determines the maximum benefit that the successor corporation can obtain in one year from all tax credits and loss carryovers for the year.
c. In addition to the § 382 yearly limitation, a year-of-transfer limitation may also apply.
d. The IRS can disallow tax benefits carryovers when § 269 applies.
e. All of the above statements are true.