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The Supreme Court has held that literal compliance with the statutory requirements for a reorganization transaction is not enough for a transaction to receive tax-free treatment.The courts have placed four primary restrictions on reorganization transactions.What are they?

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• Continuity of the investor's proprieta...

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Taxable acquisition transactions can either be a purchase of assets or a purchase of stock.

A) True
B) False

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In a nontaxable reorganization,the acquiring corporation has a holding period for the acquired assets that begins on the day after the transaction date.

A) True
B) False

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Dreyer Corporation purchased 5% of Willy Corporation's stock five years ago for $100,000.Dreyer then decides to purchase an additional 80% of the Willy stock for $1,000,000 on April 15 of the current year.On the acquisition date,Willy Corporation's liabilities are $150,000.A $300,000 tax liability is incurred by Willy on the Sec.338 deemed sale.What is the total basis of Willy Corporation's assets for Sec.338 basis allocation purposes?

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Grossed-up basis of recently purchased s...

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Identify which of the following statements is true.


A) The acquired corporation in a Type C reorganization may retain its corporation charter.
B) Alpha Corporation acquires 100% of the assets of Beta Corporation in exchange for $75,000 of Alpha stock and $25,000 in cash. Beta is subsequently liquidated. This exchange qualifies as a Type C reorganization.
C) Alpha Corporation acquires 100% of the assets of Beta Corporation in exchange for $75,000 of Alpha stock and the assumption of $25,000 of Beta liabilities. Beta is subsequently liquidated. This exchange does not qualify as a Type C reorganization.
D) All of the above are false.

E) C) and D)
F) None of the above

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Why would an acquiring corporation want an acquisition to be tax-free if it gets only a substituted basis rather than a step-up basis for the acquired assets?

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Although the motivation for the tax-free...

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Advance rulings are required for all reorganizations.

A) True
B) False

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Identify which of the following statements is true.


A) Ann, Dewey Corporation's sole shareholder, exchanges her Dewey stock having a $400,000 FMV and a $175,000 adjusted basis for $350,000 of Heider Corporation stock and $50,000 cash. Ann realizes a $225,000 gain on the stock transfer, none of which is recognized.
B) A Type B reorganization can be accomplished without formal shareholder approval.
C) The target corporation's tax attributes are lost in a Type B reorganization.
D) All of the above are false.

E) All of the above
F) C) and D)

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In a Sec.338 election,the target corporation


A) will have a holding period for assets beginning on the day after the acquisition date.
B) must use the preacquisition tax year.
C) will no longer file a separate return.
D) is considered to be a continuation of the old target corporation for purposes of the tax attribute carryover rules.

E) None of the above
F) All of the above

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A stock acquisition that is not treated as a purchase for purposes of meeting the Sec.338 rules is


A) stock whose adjusted basis is determined by its basis in the hands of the person from whom it was acquired.
B) stock acquired from a decedent.
C) stock acquired in a tax-free reorganization.
D) All of the above are correct.

E) A) and D)
F) A) and C)

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Which of the following definitions of Sec.338 property classes is not correct?


A) Class I: cash, demand deposits, and similar accounts in banks, savings and loan associations, etc.
B) Class II: actively traded personal property such as publicly traded securities
C) Class III: covenants not to compete, similar restrictions on trade, etc.
D) Class IV: inventory or other property held primarily for sale to customers

E) B) and D)
F) All of the above

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Identify which of the following statements is false.


A) A taxable acquisition of the assets of a target corporation that is subsequently liquidated, results in a loss of the target corporation's tax attributes.
B) A taxable acquisition of the assets of a target corporation, that is subsequently liquidated, results in the target corporation's shareholders recognizing gain or loss on the surrender of their target stock.
C) An acquiring corporation in a tax-free or a taxable acquisition transaction does not recognize gain or loss when its stock is issued in exchange for property.
D) An acquiring corporation in a taxable acquisition transaction must acquire all of the assets and liabilities of the target corporation.

E) A) and B)
F) B) and C)

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Jersey Corporation purchased 50% of Target Corporation's single class of stock on June 1 of this year.They purchased an additional 40% on November 20 of this year.The Sec.338 election must be made on or before


A) June 30 of this year.
B) November 30 of this year.
C) August 15 of next year.
D) June 30 of next year.

E) All of the above
F) A) and D)

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Carol owns Target Corporation stock having an adjusted basis of $41,000.As part of a Type C tax-free reorganization involving Revbo and Target Corporations,Carol exchanges her Target stock for $42,000 of Revbo stock and Revbo securities having a face amount and FMV of $8,000.What is Carol's basis in the Revbo stock?

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Marty is a party to a tax-free reorganization.He has a basis of $22,000 in his Van Corporation stock that has an FMV of $35,000.Marty exchanges the Van stock for Young Corporation stock worth $29,000 and Young securities with a face amount of $7,000 and an FMV of $6,000.What is Marty's basis in the Young securities?

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Marty must recognize $6,000 of...

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Identify which of the following statements is true.


A) Able Corporation (New York) transfers its assets to Able Corporation (Delaware) in exchange for all of its stock. Able Corporation (New York) is liquidated. This exchange is a Type F reorganization.
B) Strict adherence to legislative guidelines with regard to reorganizations is sufficient for tax-free treatment.
C) A suitable business purpose for a tax-free reorganization is to permit the minimization of shareholder taxes.
D) All of the above are false.

E) A) and D)
F) C) and D)

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Broom Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $400,000 to Docker Corporation in exchange for $400,000 of Docker Corporation stock as part of a tax-free reorganization.The Docker stock had been purchased from its shareholders one year earlier for $350,000.How much gain do Broom and Docker Corporations recognize on the asset transfer?


A) Broom Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $400,000 to Docker Corporation in exchange for $400,000 of Docker Corporation stock as part of a tax-free reorganization.The Docker stock had been purchased from its shareholders one year earlier for $350,000.How much gain do Broom and Docker Corporations recognize on the asset transfer? A) B) C) D)
B) Broom Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $400,000 to Docker Corporation in exchange for $400,000 of Docker Corporation stock as part of a tax-free reorganization.The Docker stock had been purchased from its shareholders one year earlier for $350,000.How much gain do Broom and Docker Corporations recognize on the asset transfer? A) B) C) D)
C) Broom Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $400,000 to Docker Corporation in exchange for $400,000 of Docker Corporation stock as part of a tax-free reorganization.The Docker stock had been purchased from its shareholders one year earlier for $350,000.How much gain do Broom and Docker Corporations recognize on the asset transfer? A) B) C) D)
D) Broom Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $400,000 to Docker Corporation in exchange for $400,000 of Docker Corporation stock as part of a tax-free reorganization.The Docker stock had been purchased from its shareholders one year earlier for $350,000.How much gain do Broom and Docker Corporations recognize on the asset transfer? A) B) C) D)

E) A) and B)
F) A) and C)

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Identify which of the following statements is false.


A) A Sec. 338 election usually triggers taxation to the target corporation.
B) A Sec. 338 election must be made not later than the fifteenth day of the ninth month following the first stock acquisition in a series of acquisitions that leads to 80% or more stock ownership.
C) When a Sec. 338 election is made, the target corporation is treated as having sold all of its assets at their FMV at the close of the acquisition date.
D) In a Sec. 338 deemed sale election, the shareholders of the target corporation sell their stock to the acquiring corporation.

E) B) and C)
F) A) and B)

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Acquiring Corporation acquires at the close of business on June 30 (of a nonleap year)all of the stock of Target Corporation as part of a merger transaction.Target Corporation is liquidated into Acquiring Corporation on the same day as part of the merger.Acquiring obtains assets having a $600,000 FMV and a $275,000 adjusted basis,along with a $100,000 net operating loss.Acquiring Corporation reports taxable income of $146,000 for the year.What amount of Target Corporation's NOL can be used to offset Acquiring Corporation's taxable income? (Assume all months have 30 days and ignore the Sec.382 limitation rules.)

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The lesser of Target's NOL carryover ($1...

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Identify which of the following statements is true.


A) In a tax-free reorganization, the acquiring corporation's holding period for the acquired properties includes the period of time the target corporation held the properties.
B) In a tax-free reorganization, if the acquiring corporation uses nonmonetary boot property, gains or losses will be recognized by the acquiring corporation.
C) The receipt of cash by a shareholder results in the recognition of all of his or her realized gain even if the transaction qualifies as a tax-free reorganization.
D) All of the above are false.

E) B) and C)
F) A) and B)

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