669. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #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. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #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. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #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. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #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. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #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. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #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. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #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. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #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. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #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. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #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.
