Ch. 7 Flashcards

Front 1

Character of Gain/Loss of Stock Acquistions With No Liquidation

Back 1

Simplest transaction. Gain recognized on sale is capital if its a capital asset in the sellers hands.

Front 2

Section 338 Deemed Sale Election

Back 2

First, target corps shareholders sell their stock to acquiring corp. Then acquiring corp makes a Sec. 338 deemed sale election with respect to purchased stock.

Front 3

Eligible Stock Acquistions

Back 3

Requires acquiring corp to purchase 80% or more of voting stock and 80% or more of total stock.

Hint 3

80% rule

Front 4

Allocations of Basis to Individual Assets

Back 4

Adjusted grossed up basis of the stock to allocated among seven classes of assets under residual method

Front 5

Class I Asset

Back 5

Cash and general deposit accounts

Front 6

Class II Asset

Back 6

Actively traded personal property

Front 7

Class III Asset

Back 7

Accounts receivable, mortgages, and credit card receivables

Front 8

Class IV Asset

Back 8

Inventory or other property held for sale to customers in the ordinary course of business

Front 9

Class V Asset

Back 9

all assets other than Class 1 - 4, 6, 7 assets

Front 10

Class VI Asset

Back 10

All amortizable Sec. 197 intangible assets except goodwill and going concern value

Front 11

What circumstances would you make 338 election?

Back 11

If a corporation has NOL to offset the gain

Front 12

80% requirement

Back 12

80% of total voting stock or 80% of total combined stock

Front 13

Types of Acquistive Reorganizations

Back 13

Type A, B, C, D, and G acquisitive reorganizations

Front 14

Type A reorganization

Back 14

Mergers, Consolidations, Triangular Mergers, and Reverse Triangular Mergers

Front 15

What does a Merger or Consolidation satisfy?

Back 15

Satisfies the corporation laws of the United States, a state, or Foreign Country

Front 16

Requirements for a Type A Organization

Back 16

50% total consideration used.
IRS will not issue private letter if acquiring stock is less than 50%. 50% must be only if tax payer wants a favorable ruling.

Front 17

When does a acquistion not qualify as a Type A reorganization?

Back 17

If the Target Corporation retains some assets and target corporations shareholder retain some target stock.

Front 18

Type A Advantages

Back 18

1. More flexible than other types of reorganizations because consideration doesn't need to be soley voting stock.
2. All of the assets of the target corp need not be acquired.

Front 19

Type A Disadvantages

Back 19

1. Parties to the merger must comply with applicable corporate lawas
2. Dissenting shareholders have the right to hare share independently appraised and purchased for cash.
3. All liabilities of the target corp must be assumed
4. A merger requires the transfer for real esate titles, leases, and contracts

Front 20

Triangular Mergers

Back 20

Like straight mergers except parent corp uses a controlled subisidiary to acquire target corp

Front 21

"Substantially All" Requirement

Back 21

To be non taxable, the sub must acquire substantially all of the target corps assets pursant to reorg plan. 70% of FMV of target corps Gross Assets and 90% of the FMV of net assets

Front 22

Triangular Merger Advantages

Back 22

1. Target corporations assets and liabilities become responsibility of sub.
2. Since parent is principal shareholder in the acquiring sub, shareholder approval is easily available.
3. Target corp may receive parent corp stock for marketability

Front 23

Reverse Triangular Mergers

Back 23

Similar to triangular merger except sub merges into the target corporation, the target corp remains in existence as a new sub of the parent corp, and acquiring sub goes out of existence

Front 24

Type C Reorganization

Back 24

Asset for Stock Acquisition

Front 25

Consideration Used to Effect the Reorganization

Back 25

If atleast 80% of target property is obtained for stock, then money, securities, nonvoting stock, and other property can be used to acquire up to 20% of target assets

Hint 25

80% Rule

Front 26

Advantages and Disadvantages of Type C Reorganization

Back 26

1. The acquiring corporation obtains only assets specified in the acquistion agreement.
2. Acquiring corp assumes only target corp's liabilities as in agreement
3. Shareholders of the acquiring corp generally need not approve the acquisition, reducing transaction cost.
4. Target liabilities assumed by acquiring corp are so substantial as to preclude use of consideration other than voting stock.
5. Dissenting shareholders of target corp may have the right to have their shares independetly appraised and purchased for cash.

Front 27

Type B Reorganization

Back 27

Simplest of acquisitive reorganizations but most restrictive. Target corp shareholders exchange their stock for acquiring corp's voting stock, then targeting corp remains in existence as the acquiring corp's sub

Front 28

Solely For Voting Stock Requirement

Back 28

Acquiring corp must acquire target corp stock in exchange for soley for acquiring voting stock.

Front 29

Consequence of acquiring corporation using consideration other than voting stock in at Type B Reorganization?

Back 29

The transaction will not qualify as a Type B reorg and will be taxable to target corp shareholders

Front 30

Type B Debt Obligations

Back 30

Acquiring corp obligations can be exchanged for target corporation debt obligations held by target shareholders

Front 31

2 Exceptions to use Cash in Type B Reorganization

Back 31

1. Target corporation shareholders can receive cash in exchange for their right to receive a fractional share of acquiring corp stock.
2. Acquiring corp can pay reorganization expenses of target corp.

Front 32

Minority Interest

Back 32

Up to 20% of minority can remain.

Front 33

Redemption of Minority Shareholders Stock

Back 33

Can use its cash to redeem the minority shareholders interest before or after reorganization.

Front 34

Timing of Transaction

Back 34

Stock of acquiring corp can be exchanged for 100% of target corps shares in single transaction. Other times it can be a series of transactions over a period of time.

Front 35

Advantages of a Type B Reorganization

Back 35

The acquistion of target corp stock usually can be in a single transaction without shareholder approval.

Front 36

Type G Reorganization

Back 36

Known as "Bankruptcy." Transfer by a corporation of part or all of its assets to another corp in Title 11 Bankruptcy or similar case, only if part of the plan, stock or securities of the corp qualify under section 354-356

Front 37

Divisive Type D Reorganization
Tax Consequence

Back 37

Can do without any tax consequence even if the distributing corps transfers no assets to controlled corp.

Front 38

Divisive Type D Business Objectives

Back 38

1. Dividing an enterprise into two or more corps to separate risk.
2. Splitting up a single business among two or more disputing shareholders
3. Dividing an enterprise according to functions, profit centers, or geographical areas
3. Divesting operations because of antitrust laws

Front 39

Split Off

Back 39

The distributing corp transfers SOME of its assets to a controlled corp in exchange for stock or securities, money, or other boot.

Front 40

Spin Off

Back 40

Distributing corp transfers SOME of its assets to a controlled corp in exchange for stock and possibly securities, money, or other boot

Front 41

Split Up

Back 41

Distributing corp transfers ALL its assets to two controlled corporations in exchange for stock and possbilly securities, money, or other boot

Front 42

Asset Transfer

Back 42

Distributing corp recognizes no gain or loss on transfer unless it receives retains boot property or controlled corp assumes liabilities exceeding basis of assets transfered.

Front 43

Consequence of Stock for Property Distribution

Back 43

No gain or loss recognized in the exchange of stock for distributing corps property.

Front 44

Type E Reorganization

Back 44

Recapitalization. Reshuffling of the corporate structure within the framework of existing corp.

Front 45

Business Purposes for Type E Reorganization

Back 45

1. Reduce interest payments and debt to equity ratio
2. Shareholder can transfer management control to his or her children

Front 46

3 Types of Adjustments for Type E Reorganization

Back 46

1. Stock for Stock
2. Bond for Stock
3. Bond for Bond
"Stock for Bond" doesn't qualify

Front 47

Type F Reorganization

Back 47

Mere change in indenity, form, or place of organization one corp

Front 48

Continuity of Proprietary Interest

Back 48

IRS requires that atleast 50% of total consideration received by target corp shareholders consist of acquiring corp stock

Front 49

Continunity of Business Enterprise

Back 49

Implies that the acquiring corp either continue the corp's business or use a significant portion of target corp's assets in new business

Front 50

Business Purpose Requirement

Back 50

The form of the corporate reorganization cannot be a disguise for concealing its real character, otherwise its not a plan or reorganization

Front 51

Step Transaction Doctrine

Back 51

IRS can invoke to collapse a multistep reorganization into a single taxable transaction.

Front 52

What is a C Reorganization

Back 52

Asset for Stock

Front 53

What is the substantially all requirement?

Back 53

70% of Gross Assets and 90% of FMV of Net Assets

Front 54

What is a B Reorganization

Back 54

Stock for Voting Stock