Solution manual SW federal taxation corporations partnerships estates and trusts 35e by hoffman chapter 07

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CHAPTER 7
CORPORATIONS: REORGANIZATIONS
SOLUTIONS TO PROBLEM MATERIALS

Question/
Problem
1
2
3
4

Learning
Objective
LO 1
LO 1, 2
LO 1
LO 2

5
6
7
8
9
10
11
12
13
14
15

16

LO 2
LO 1, 2, 3
LO 3
LO 3
LO 3
LO 3
LO 3
LO 3
LO 3
LO 3
LO 3, 4, 5
LO 3, 4, 6

17
18

LO 5
LO 5

19

LO 5

20
21
22
23
24

25
*26
27

LO 4
LO 4
LO 5
LO 5
LO 5, 6
LO 5, 6
LO 3
LO 2

Topic
IRS Letter Ruling
Treatment of taxable reorganization gains
Types of reorganizations
Like-kind exchange versus corporate
reorganization
Reorganization: tax effects
“Type A” reorganization
“Type A” and “Type B” reorganizations
“Type B” and “Type C” reorganizations
“Type A” and “Type C” reorganizations
“Type C” reorganizations
“Type D” reorganizations
“Type E” reorganization
“Type F” reorganization
“Type G” reorganization
Section 382 and judicial doctrines

“Type C” continuity of interest and step
transaction doctrine
Application of § 381 limitation
Ownership change for shareholders owning
less than 5%
Objective of § 382 limitation: future income
stream
Continuity of business enterprise
Judicial doctrines
Excess credit § 382 limitation computation
Negative E & P carried to successor
Net present value of NOL
Earnings & profits
Classify as to type of reorganization
Gain taxable as stock redemption

Status:
Present
Edition

Q/P
in Prior
Edition

Modified
Modified
Modified
New
New
Unchanged

New
New
Modified
New
Modified
New
Unchanged
Unchanged
New
Unchanged

1
2
3

6
9
11
13
14
16

New
Modified

18

Modified

19

Unchanged
New
New
Unchanged
New
Unchanged
New
Modified

20
23
25
27

Instructor: For difficulty, timing, and assessment information about each item, see p. 7-4.

7-1
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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7-2

2012 Corporations Volume/Solutions Manual

Question/
Problem
28

29
30
31
*32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55

Learning
Objective

LO 2

Topic

Reorganization gain, loss, and basis
determination
LO 2
Character of shareholder gain
LO 2, 3
Stocks and bonds received in a “Type E”
reorganization
LO 2
Effect on basis when gain recognized
LO 2
Gain recognition and basis computation
LO 2
Reorganization gain, loss, and basis
determination
LO 3
Classify type of reorganization
LO 3, 6
Structuring a “Type B” or “Type C”
reorganization
LO 3, 6
Comparison of “Type A”, “Type C,” and
acquisitive “Type D” reorganizations
LO 3, 6
“Type B” reorganization
LO 3, 6
“Type C” reorganization

LO 3, 6
“Type D” reorganization
LO 3
“Type D” reorganization
LO 2, 3
“Type E” reorganization
LO 3
“Type F” reorganization
LO 3
“Type G” reorganization
LO 3, 4
Sound business purpose and continuity of
business
LO 2, 3, 4, Continuity of interest and NOL carryover
5, 6
LO 5
Capital loss carryover and “Type B”
reorganization
LO 5
NOL carryover and § 382 limitation
LO 3, 5
NOL carryover change year when no § 382
limitation
LO 5
“Type E” reorganization and net present
value
LO 5
Carryover of NOL: net present value
LO 5
Net present value of acquired NOL

LO 5
Carryover of capital loss and excess credits
LO 5
Business credits and net present value
LO 5
Stock valuation and net present value
LO 3, 4, 5, Application of Judicial doctrines; NOL and
6
business credit carryovers

Status:
Present
Edition

Q/P
in Prior
Edition

Unchanged

28

Unchanged
New

29

New
Unchanged
Unchanged

32
33

New
Modified

34

Unchanged

35

Modified
Unchanged
New
Unchanged
New
Unchanged
Unchanged
New

36
37

Unchanged

39
41
42

44

New
New
New
New
Unchanged
Unchanged
Unchanged
New
New
Unchanged

49
50
51
48

*The solution to this problem is available on a transparency master.
Instructor: For difficulty, timing, and assessment information about each item, see p. 7-4.

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Corporations: Reorganizations

Research
Problem

1
2
3
4
5
6
7
8

Topic
“Type B” reorganization with bond exchange
“Type G” reorganization
“Type D” reorganization
Treatment of reorganization costs
Internet activity
Internet activity
Internet activity
Internet activity

7-3

Status:
Present
Edition
Unchanged
Unchanged
Unchanged
New
New
New

New
New

Q/P
in Prior
Edition
1
2
3

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7-4

2012 Corporations Volume/Solutions Manual

Question/
Problem

Est'd
completion
time

Difficulty

Assessment Information
AICPA*

AACSB*
Core Comp
Core Comp

1
2

Easy
Easy

5
5

3
4

Easy
Easy

5
5

5
6

Easy
Medium

5
10

7
8
9

Easy
Easy
Easy

5
5
10

FN-Reporting
FN-Measurement | FNReporting
FN-Reporting
FN-Measurement | FNReporting
FN-Reporting
FN-Measurement | FNReporting
FN-Reporting
FN-Reporting
FN-Reporting

10
11
12
13
14
15

Easy
Easy
Easy
Easy
Easy
Medium

5
5
5
5
5
10

FN-Reporting
FN-Reporting
FN-Reporting
FN-Reporting
FN-Reporting
FN-Reporting

16
17
18
19
20
21
22

Hard

Easy
Easy
Easy
Medium
Medium
Easy

10
5
5
5
10
10
5

23
24

Easy
Medium

5
10

FN-Reporting
FN-Reporting
FN-Reporting
FN-Reporting
FN-Reporting
FN-Reporting

FN-Measurement | FNReporting
FN-Reporting
FN-Reporting

25
26
27

Medium
Hard
Medium

10
15
10

28

Hard

15

29

Medium

10

30

Analytic | Reflective
Thinking
Analytic
Analytic
Analytic | Reflective
Thinking
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic | Reflective
Thinking
Analytic
Analytic
Analytic
Analytic
Communication | Analytic
Analytic
Analytic
Analytic
Analytic | Reflective
Thinking
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic | Reflective
Thinking

Analytic
Analytic

*Instructor: See the Introduction to this supplement for a discussion of using AICPA and AACSB
core competencies in assessment.

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

To download more slides, ebook, solutions and test bank, visit

Corporations: Reorganizations

Question/
Problem

Difficulty

Est'd
completion
time

33

Hard

15

34
35

Hard
Medium

15
10

36

Medium

15

37

Medium

10

38

Medium

15

39

Medium

10

40

Medium

15

41

Easy

5

42

Easy

5

43

Medium

10

44

Hard

10

45

Hard

10

46

Easy

5

47

Medium

48

Easy

5

49

Hard

20

50

Medium

10

51

Medium

10

52

Medium

10

53

Medium

15

54

Hard

10

55

Analytic
Analytic | Reflective
Thinking
Analytic | Reflective
Thinking
Analytic
Analytic | Reflective
Thinking
Analytic | Reflective
Thinking
Analytic | Reflective
Thinking
Analytic | Reflective
Thinking

*Instructor: See the Introduction to this supplement for a discussion of using AICPA and AACSB
core competencies in assessment.

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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7-6

2012 Corporations Volume/Solutions Manual
CHECK FIGURES

26.a.
26.b.

26.c.
26.d.
26.e.
26.f.
27.
28.

“Type D” spin-off.
Taxable.
“Type A.”
Taxable.
Acquisitive “Type D.”
“Type B.”
$300,000 stock redemption gain.
Tyron $50,000 gain, $250,000 basis.
Anna no loss recognized, $220,000
basis. Triangle $480,000 basis.
29.
$84,000 dividend, $16,000 capital gain.
30.
“Type E,” $20,000 gain to shareholder
and to bondholder.
31.a. Frank: stock basis $200,000, bond
basis $20,000, $14,000 dividend, and
$6,000 capital gain. Kasha: stock basis
$800,000, bond basis $80,000, $56,000
dividend, and $24,000 capital gain.
31.b. Nontaxable to Quail. Covey’s basis
$1.5 million.
32.a. Rosa’s basis $50,000; Arvid’s basis

$600,000.
32.b. Rosa no gain; Arvid $80,000 gain;
Lodgepole $40,000 gain; Pine no gain.
33.a. Stock value $270,000.
33.b. Lea’s $50,000 realized loss not
recognized.
33.c. Lemon’s $10,000 gain recognized;
Lime’s basis in Lemon’s assets
$900,000.
34.a. “Type F.”

34.b.
34.c.
34.d.
34.e.
34.f.
35.
36.
37.
38.
39.
40.
41.
42.
43.
46.
47.
48.
49.
50.

51.
52.
53.
54.

Taxable.
Taxable.
“Type D” split-up.
“Type C.”
Taxable.
Qualifies for “Type B,” not “Type C”
with Otter.
Acquisitive “Type D” best choice.
Shareholder’s gain $200,000 in
separate transaction; current
transaction “Type B.”
“Type C.”
Split-up “Type D.”
Divisive “Type D.”
“Type E.”
“Type F.”
“Type G,” NOL benefit $150,000.
Golden cannot use RetrieverCo’s
capital loss.
$165,000 NOL used by Collie.
$80,000 NOL used by Spaniel.
Net present value of $180,000 bond is
higher.
Net present value of NOL $118,932.
Maximum value of Kers $626,812.

$60,000 capital loss carryover and
$20,400 business credits in current year.
Net present value of credits $45,553.
Maximum shares 33,498; “Type A,” or
“Type C” reorganization.

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Corporations: Reorganizations

7-7

DISCUSSION QUESTIONS
1.

Since the dollar amount involved in a reorganization may be substantial, the tax consequences
are important. Therefore, corporations contemplating a corporate reorganization should seek
an IRS letter ruling determining the income tax effect of the restructuring. Assuming the
parties proceed with the transaction as proposed in the ruling request, a favorable ruling
provides, in effect, an insurance policy as to the tax treatment of the restructuring. p. 7-2

2.

If a corporate reorganization produces taxable gains, a corporate shareholder would prefer the
gains to be treated as a dividend because of the dividends received deduction. While
dividends and capital gains are taxed at the same rates, individuals prefer capital gains
because of the subtraction of stock basis in determining the amount of the gain recognized.

The gain on a corporate reorganization is treated as a dividend to the extent of the
shareholder’s proportionate share of the corporate earnings and profits at the time of the
reorganization. The stock redemption rules can apply if the reduction in the shareholder’s
ownership meets the requirements of § 302(b).
A comparison of the acquiring stock received with the number of shares that could have been
received if solely stock had been distributed is the basis for determining the application of the
substantially disproportionate redemption rules.
pp. 7-2, 7-6, and 7-7

3.

The seven forms of corporate reorganizations that qualify as nontaxable exchanges include
the following.
A.

A statutory merger or consolidation.

B.

The acquisition by a corporation of another using solely stock of each corporation
(voting-stock-for-stock exchange).

C.

The acquisition by a corporation of substantially all of the property of another
corporation in exchange for voting stock (stock-for-asset exchange).

D.

The transfer of all or part of a corporation’s assets to another corporation when the

original corporation’s shareholders are in control of the new corporation immediately
after the transfer (divisive exchange, also known as a spin-off, split-off, or split-up).

E.

A recapitalization.

F.

A mere change in identity, form, or place of organization.

G.

A transfer by a corporation of all or a part of its assets to another corporation in a
bankruptcy or receivership proceeding.

p. 7-4
4.

The tax treatment for the parties involved in a tax-deferred reorganization almost exactly
parallels the treatment under the like-kind exchange provisions of § 1031. In the simplest
form, no gain or loss is recognized. If there is boot, gain (but not loss) is recognized to the
extent of the lesser of the boot received or realized gain. In § 368 transactions, the basis in the
asset received is the vehicle for postponement of any gain not recognized in the transaction.
For the acquiring corporation, the basis in the assets received is a carryover basis plus any
gain recognized by the target corporation. pp. 7-4, 7-5, and 7-8

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7-8

2012 Corporations Volume/Solutions Manual

5.

Using the four column template in Concept Summary 7.1, the shareholder’s basis in the new
stock is the fair market value of the new stock less the postponed gain. The postponed gain is
equal to the gain that was realized but not recognized. This computation assures that the gain
not currently recognized will be recognized when the stock is sold at a later date. pp. 7-4, 7-5,
and Concept Summary 7.1

6.

Some tax issues to consider are listed below. This should not be considered an exhaustive list
of possible issues.
•

What is Mervin’s basis in his Fern stock?

•

What will be Mervin’s basis in his Ivy stock?

•

Will the transaction qualify as a “Type A” reorganization?

•

•

Did Ivy assume all of Fern’s liabilities?

•

Were the state law requirements met?

•

Was the restructuring approved by the shareholders?

•

Is the continuity of interest test met? That is, what did the other Fern shareholders
receive?

Is the bond considered boot to Mervin?
•

If yes, does a portion of the transaction qualify for stock redemption treatment?

•

If yes, what is the amount and character of the gain Mervin recognizes?

•

Could the reorganization meet the requirements of a “Type C” reorganization?

•

Was the Ivy stock used in the restructuring common and/or preferred?

•

Is either Fern or Ivy required to recognize gain on the transaction?

pp. 7-4 to 7-10 and Chapter 6
7.

Unlike a “Type B” reorganization, the acquiring corporation in a “Type A” need not use
solely voting stock. Acquiring can transfer money, other property, and other classes of stock
without destroying the tax-free treatment. In a “Type B” reorganization, Acquiring may use
only voting stock as the consideration. This requirement is strictly construed. pp. 7-9 and 7-13

8.

In a “Type B” reorganization, the target corporation becomes a subsidiary of the acquiring
corporation. In a “Type C” reorganization, the target’s assets are transferred to the acquiring
corporation and the target must liquidate after the restructuring. Thus, Target is consumed by
Acquiring. pp. 7-10, 7-12 to 7-14, and Figures 7.2 and 7.3

9.

In the “Type A” reorganization, the acquiring corporation must assume all liabilities
(including unknown and contingent liabilities) of the target corporation as a matter of state
law. However, in the ‘‘Type C,’’ the acquiring corporation assumes only the target liabilities

that it chooses. Normally, the acquiring corporation is not liable for unknown or contingent
liabilities of the target. Thus, the ‘‘Type C’’ can be preferable to the ‘‘Type A’’
reorganization. pp. 7-10, 7-14, and 7-15

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Corporations: Reorganizations

7-9

10.

The substantially all of the assets test in a “Type C” reorganization does not have a statutory
definition. To receive a favorable IRS ruling, the target must transfer to the acquiring
corporation at least 90% of its net assets value and 70% of its gross asset value. p. 7-16

11.

The “Type D” reorganizations include the following.
•

Acquisitive: Substantially all of the acquiring corporation’s assets are transferred to the
target corporation in exchange for target stock. Acquiring corporation must be in control
of target after the transaction and acquiring corporation must liquidate.

•

Spin-off: A new corporation is formed to receive some assets from the distributing
corporation in exchange for the new corporation’s stock. The new corporation’s stock is
distributed to the distributing corporation’s shareholders. None of the distributing
corporation’s stock is surrendered.

•

Split-off: Like a spin-off, except that the shareholders surrender distributing corporation
stock in exchange for stock in the new corporation.

•

Split-up: Two or more new corporations are formed and receive all of the distributing
corporation’s property. The stock of each new corporation is exchanged for the
distributing corporation’s stock. The distributing corporation is then liquidated.

pp. 7-16 to 7-21
12.

A “Type E” reorganization permits an exchange of stock for stock, bonds for stock and bonds
for bonds. Stock for bonds is not tax-free. p. 7-19

13.

A “Type F” reorganization is merely changing the corporation’s identity (name), form (going
from an S to a C corporation or vice versa), or place of organization. p. 7-22 and Examples 27
and 28

14.

The continuity of interest test is more lenient for “Type G” reorganizations. When a
corporation is insolvent, the creditors become the real owners of the corporate assets. Thus,
rather than the shareholders, the creditors should hold the continuing interest in the property
of the insolvent corporation. The former shareholders need not receive any stock in the
acquiring corporation for the restructuring to qualify as the “Type G” reorganization. pp. 7-22
and 7-23

15.

The list of concerns regarding the proposed merger of Air and Water should include the
following.
•

Does Air have a valid business purpose for the proposed merger?

•

Will the continuity of interest requirement be met for Water shareholders?

•

Can the continuity of business test be met if Air discontinues the manufacture of scuba
diving equipment? Could the continuity of business requirement be met using the asset
use test? That is, are the same assets used in the production of scuba diving equipment and
air tanks for the military?

•

Can Air meet the state and Federal corporate law requirements for the merger?

•

Could the IRS apply § 269 to disallow the benefits from any of the carryovers?

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7-10

2012 Corporations Volume/Solutions Manual
•

To what extent is Air limited by § 382 in its utilization of Water’s capital loss carryovers?
Can Air sell its investments to generate enough gains to deduct the capital losses before
they expire?

•

Under what type of reorganization would the proposed merger be able to qualify?

pp. 7-25 to 7-35 and Concept Summary 7.4
16.

It is not likely that the IRS would apply the step transaction doctrine to the proposed
transactions of Square and Circle corporations. In the planned divisive “Type D” split-off
reorganization, those shareholders not interested in becoming owners of Square will receive
shares in a new corporation that receives Circle’s assets not wanted by Square. Therefore, not
all of Circle’s original owners will become shareholders of Square.

However, the continuity of interest requirement is determined at the time of the “Type C”
reorganization and transactions before and after the reorganization are not considered. As for
acquiring substantially all of Circle’s assets (a requirement for the “Type C” reorganization),
the prior split-off is not considered as an integral step in the reorganization. The IRS has
indicated that it will not apply the step transaction doctrine to reorganizations even when they
are part of a coordinated plan. pp. 7-13 to 7-16, 7-25, 7-26, and 7-36 to 7-38

17.

The “Type A,” “Type C” acquisitive, “Type D,” and “Type G” reorganizations fall under the
carryover rules of § 381. p. 7-28

18.

The testing period for § 382 is generally the three years prior to the carryover year.
Shareholders owning less than a 5% interest during the testing period are aggregated and
treated as one shareholder for determining an owner shift. Thus, transfers between
shareholders who own less than 5% do not influence the percentage-point ownership change
computation. p. 7-30

19.

The objective of the § 382 limitation is to restrict carryforward usage to the hypothetical
future income stream from the loss corporation. This future income stream is defined as the
yield that would be received if the stock were sold, and the proceeds were invested in longterm tax-exempt securities. pp. 7-30 and 7-31

20.

Hoffman, Raabe, Smith, and Maloney, CPAs
5191 Natorp Boulevard

Mason, OH 45040
October 28, 2011
Ms. Emily Arson, President
510 S. Market Street
Alton, MO 65606
Dear Emily:
This letter is in response to your question regarding the application of the continuity of
business enterprise doctrine to the pending reorganization of Emar Corporation with Mega
Tires, Inc. The continuity of business enterprise is to ensure that tax-free reorganization
treatment is limited to the situation where Emar’s business continues. This continuity can be
met by either continuing the production of shoes or using a significant portion of Emar’s
assets in the reorganized entity.

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Corporations: Reorganizations

7-11

Based on the facts you have provided, it does not appear that Mega Tires is planning to
continue Emar’s business as measured by either test. You should suggest that Mega Tire not
demolish Emar’s plant but rather incorporate this building into the new tire retail outlet. Since
the plant and land constitute 90 percent of Emar’s asset value, using the plant and land in the
tire outlet would meet the requirement of using a significant portion Emar’s assets by the
reorganized entity.
If you should desire further tax advice on this issue, please contact our firm at your earliest
convenience.

Sincerely,
Tiberius Tsu, CPA
pp. 7-26 and 7-27
21.

The sound business purpose doctrine requires that the reorganization have economic
consequences germane to the businesses. The purpose must go beyond tax avoidance because
tax avoidance is not, by itself, considered a business purpose. Regulations indicate that the
corporation’s business purpose should be paramount. However, the courts have considered
both corporate and shareholder purposes in this regard, because it is sometimes impossible to
distinguish between them.
The continuity of business enterprise test requires the acquiring corporation to either
(1) continue the target corporation’s historic business (business test) or (2) use a significant
portion of the target corporation’s assets in its business (asset use test). Continuing one of the
target corporation’s significant business lines satisfies the business test.
The step transaction doctrine prevents taxpayers from engaging in a series of transactions for
the purpose of obtaining tax benefits that would not be allowed if the transaction was
accomplished in a single step. When the steps are so interdependent that the accomplishment
of one step would be fruitless without the completion of the series of steps, the transactions
may be collapsed into a single step. pp. 7-25 to 7-27

22.

The § 382 limitation for business credits requires calculations beyond what is necessary for
NOLs, because the § 382 limitation is defined for deductions. To convert the § 382 limitation
for business credits, the following steps are necessary.
1. Calculate regular tax liability after allowable losses.
2. Compute regular tax liability as if the full § 382 limitation is deductible.
3. Subtract the tax liability in step 2 from the tax liability in step 1. The remainder is the
§ 382 limitation applicable to excess credits.

pp. 7-34 and 7-35

23.

The negative earnings and profits (E & P) balance that is carried over in a reorganization is
deemed as received by the successor corporation as of the change date. The negative E & P
carried over can only offset E & P accumulated by the successor corporation after the change
date. Consequently, the successor corporation must maintain two separate E & P accounts
after the change date: one account contains the prior accumulated E & P as of the change date,
and the other contains the negative balance transferred and E & P accumulated since the
change date. The negative balance in the post-transfer account may not be used to reduce
accumulated E & P in the pre-transfer account. p. 7-34

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7-12

2012 Corporations Volume/Solutions Manual

24.

In valuing Flower Corporation, Garden Corporation should consider the time value of money.
While the capital loss carryforward is a valuable “asset” of Flower, it may not all be used in
the first year of the acquisition. Based on the Federal long-term tax-exempt rate times the
value of Flower’s assets, Garden can determine the amount of capital loss carryforward
available for use each year and use this to figure the number of years needed to fully use it.
The yearly amount available, number of years to use the capital loss carryforward, along with

Garden’s discount rate for investments are factors used in determining the present value of the
capital loss carryforward. The net present value of the capital loss carryover indicates the
maximum amount Garden should pay for the capital loss tax benefit. p. 7-32

25.

When the target corporation has a deficit in its earnings and profits (E & P) account, the
acquiring corporation will have two E & P accounts. The target’s deficit may be used only to
offset E & P accumulated by the acquiring corporation after the change date. Consequently,
the acquiring corporation must maintain two separate E & P accounts after the change date:
one account contains the acquiring corporation’s prior accumulated E & P as of the change
date, and the other contains the deficit transferred and E & P accumulated since the change
date. The deficit in the post-transfer account may not be used to reduce accumulated E & P in
the pre-transfer account. p. 7-34

PROBLEMS
26.

27.

a.

“Type D” spin-off reorganization. Stock in Chow is not relinquished to receive Spitz
stock. pp. 7-17 to 7-21

b.

Taxable transaction. Does not qualify as a “Type G” reorganization. The creditors did
not receive voting stock representing at least 50% of the total fair value of the
liabilities. pp. 7-22 and 7-23

c.

“Type A” reorganization. Does not qualify as a “Type C” reorganization because
substantially all of the assets are not acquired with voting stock. pp. 7-9, 7-10, and
7-13 to 7-15

d.

An acquisitive “Type D” reorganization because Griffon (acquiring) has transferred
substantially all of its assets to Akita. pp. 7-16 and 7-17

e.

An acquisitive “Type D” reorganization because Anatol (acquiring) transfers all of its
assets to York. It obtains a controlling interest (at least 50% control) in York. pp. 7-16
and 7-17

f.

“Type B” reorganization. As long as Canaan owns at least 80% after the restructuring,
it is a "Type B." pp. 7-10 to 7-13

Cole realizes a gain on the transaction of $800,000 ($900,000 stock + $300,000 land –
$400,000 basis). Gain is recognized by Cole to the extent of the boot received ($300,000 land)
which is less than the realized gain of $800,000. This transaction qualifies as a stock
redemption under § 302(b)(2) since Cole’s ownership interest changes by more than 20% due
to the receipt of land. Great’s total stock value is $12 million ($900,000/7.5%). If Cole had
received solely stock worth $1.2 million ($900,000 + $300,000), his interest in Great would
have been 10% ($1.2 million/$12 million). A decline from 10% to 7.5% is more than a 20%

reduction (2.5%/10% = 25%). Therefore, Cole’s $300,000 recognized gain is long-term
capital gain. pp. 7-6, 7-7, and Example 4

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Corporations: Reorganizations
28.

7-13

The reorganization meets the § 368 requirements for the “Type A” consolidation, and
therefore it receives nontaxable exchange treatment. Neither Tri nor Angle Corporation
recognizes gain or loss because each distributes all of the Triangle stock and cash received in
the transaction to their shareholders.
Gain, loss, and basis determination for Tyron and Anna can be determined using the fourcolumn formula presented in Concept Summary 7.1.
Realized Gain/Loss

Recognized
Gain/Loss

Postponed
Gain/Loss

Basis in
Assets/Stock

Tyron

$400,000
−250,000
$150,000

$50,000
cash received

$150,000
− 50,000
$100,000

$350,000
− 100,000
$250,000

Anna

$200,000
−250,000
($ 50,000)

($50,000)

$170,000
+ 50,000
$220,000

$

–0–

Tyron recognizes a $50,000 gain due to the cash he received. He has a carryover basis of
$250,000 in his Triangle stock. Anna may not recognize the loss on her stock. Her basis in the
Triangle stock is $220,000 ($250,000 basis – $30,000 cash received) (or computed as shown
above).
Since Tri and Angle recognized no gain or loss on the consolidation, Triangle has a carryover
basis in the assets it receives. This basis is equal to Tri’s basis of $280,000 plus Angle’s basis
of $200,000, or $480,000. Triangle assumes liabilities from Tri ($250,000) and Angle
($50,000) for a total of $300,000.
p. 7-5, Example 8, and Concept Summary 7.1
29.

Using the four-column formula presented in Concept Summary 7.1, Rama’s recognized gain
is $100,000.
Realized Gains
$390,000*
–225,000
$165,000

Recognized Gains

Postponed Gain

$100,000
cash received

$65,000

Basis in Stock

$290,000
– 65,000
$225,000

*60% [$950,000 (fair market value) – $300,000 (liabilities)]
The $100,000 gain will be treated as a dividend to the extent of Rama’s proportionate share of
E & P. Thus, $84,000 is treated as a dividend ($140,000 × 60%) and the remaining $16,000 is
capital gain. pp. 7-6, 7-7, Example 4, and Concept Summary 7.1
30.

This restructuring qualifies as a “Type E” reorganization. It is not immediately taxable to the
shareholder to the extent that he received common or preferred stock for his prior stock. To
the extent of the lesser of the realized gain or $20,000 cash received, the shareholder has a
taxable gain. The bondholder has a gain equal to the $20,000 difference in face values of the
bonds ($170,000 – $150,000). The fact that the bonds pay at different interest rates is not
relevant to the taxation of the exchange. pp. 7-19 to 7-22

31.

a.

The merger of Quail and Covey Corporations results in Frank receiving $20,000 in
bonds ($100,000 × 20%) and $380,000 in Covey stock ($1.9 million × 20%) for his

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2012 Corporations Volume/Solutions Manual
Quail stock. He has a realized gain of $200,000 ($400,000 – $200,000) and a
recognized gain of $20,000 due to the bond.
Kasha receives the remaining $1,520,000 in Covey stock and $80,000 in bonds. Since
her basis in the Quail stock was $800,000, Kasha has an $800,000 realized gain
($1,600,000 – $800,000) and recognizes gain to the extent of the bond received, or
$80,000.
The character of Frank’s and Kasha’s gain is part dividend (to the extent of the
$70,000 earnings and profits) and part capital gain.
Frank: $70,000 × 20% = $14,000 dividend and $6,000 capital gain ($20,000 –
$14,000).
Kasha: $70,000 × 80% = $56,000 dividend and $24,000 capital gain ($80,000 –
$56,000).
Frank’s basis in his Covey stock is $200,000 and Kasha’s basis in her Covey stock is
$800,000. The basis of the bond for Frank is $20,000 and for Kasha is $80,000.
b.

Since Quail distributes the Covey stock and bond it received in exchange for its assets,
Quail recognizes no gain on the reorganization. Covey’s basis in the Quail assets is a
carryover basis of $1.5 million.

pp. 7-3 to 7-9
32.

Realized Gain

Recognized Gain Postponed

Basis in Stock

Rosa

$300,000
– 50,000
$250,000

$

–0–

$250,000

$300,000
–250,000
$ 50,000

Arvid

$700,000
–620,000
$ 80,000

$80,000

$ 80,000
– 80,000
$
–0–

$600,000
–0–
$600,000

a.

Rosa has a substituted basis from her stock in Pine to her stock in Lodgepole. Arvid’s
basis in the Lodgepole stock is its FMV, because all the realized gain is recognized
(no gain is postponed). As shown above, Rosa’s basis in her Lodgepole stock is
$50,000 and Arvid’s basis is $600,000.

b.

As shown above, Rosa has no recognized gain on the exchange of her stock. Arvid
recognizes gain of $80,000, the lesser of the $80,000 realized gain or the value of the
boot received ($100,000 in assets). Lodgepole recognizes a $40,000 gain on the assets
transferred to Pine and distributed to Arvid ($100,000 – $60,000 basis). Pine
recognizes no gain or loss on the reorganization.

pp. 7-5, 7-6, Concept Summary 7.1, and Example 8
33.

a.

The value of stock transferred from Lime to Lemon is $270,000, computed as follows.
($900,000 value – $600,000 liabilities) × 90% = $270,000 stock.

b.

Lea receives stock and assets valued at $300,000 for her Lemon stock, computed as

follows.

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Corporations: Reorganizations

7-15

Lime stock $270,000 + assets $30,000 ($90,000 value – $60,000 liability) = $300,000.
Realized Gain
$300,000
–350,000
($ 50,000)

Recognized Gain/Loss
$–0–

Postponed Gain/Loss
($50,000)

Basis in Stock
$270,000
+50,000
$320,000

Lea has a realized loss of $50,000 that she cannot recognize. Her basis in the Lime
stock is $320,000.

c.

Lemon has a realized loss of $90,000 (computed below) from the merger that cannot
be recognized. It has a $10,000 recognized gain on the distribution to Lea.
$900,000 value – $90,000 distribution of Lea = $810,000 value of assets transferred to
Lime.
$980,000 basis − $80,000 distributed to Lea = $900,000 basis of assets transferred to
Lime.
$810,000 − $900,000 = ($90,000).
Distribution to Lea: $90,000 value – $80,000 basis = $10,000 gain.
Lime’s basis in Lemon’s assets is $900,000, a carryover basis from Lemon.

pp. 7-4 to 7-9, Concept Summaries 7.1, 7.2, and Example 9
34.

35.

a.

This is a “Type F” reorganization. p. 7-22

b.

This is a taxable transaction. It does not qualify as a “Type A” or a “Type C” because
Tzu retains the investments and does not liquidate. pp. 7-9, 7-10, and 7-13 to 7-15

c.

This is a taxable transaction. It does not qualify as a “Type B” because solely voting
stock was not exchanged by Mastiff. pp. 7-10, 7-12, and 7-13

d.

This is a “Type D” split-up reorganization. Rottweiler divides into two corporations
then ceases to exist. pp. 7-17 to 7-21

e.

This is a “Type C” reorganization. It does not qualify as a “Type A” because none of
the liabilities were assumed by Low-Chen. pp. 7-9, 7-10, and 7-13 to 7-15

f.

This is a taxable transaction. It does not qualify as a “Type A” because all of the
liabilities are not assumed. It does not qualify as a “Type C” because the cash causes
the liabilities to be counted as boot. The boot then is $410,000 [$5,000 cash + (90% ×
$450,000)]. Consequently, only 59% of Spaniel’s assets were acquired with stock
($590,000/$1,000,000). 7-9, 7-10, and 7-13 to 7-15

The fact that ShibCo already owns 33% of Apso, Inc. will not adversely affect its ability to
meet the requirement of acquiring at least of the 80% stock (“Type B”) or 80% of the assets
(“Type C”). Using a “Type B” reorganization, ShibCo can exchange $5.7 million in its voting
stock with April for her 57% interest in Apso [57% × ($12 million – $2 million liabilities)].
After the exchange, ShibCo will own 90% of Apso.

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2012 Corporations Volume/Solutions Manual
Otter Corporation does not have to relinquish its $1 million of shares in Apso since it does
not want to become a shareholder of ShibCo. If Otter desires to receive cash or other
property for its stock, ShibCo cannot quality for tax-free treatment under a “Type B” or
“Type C” reorganization. A “Type B” requires that the sole consideration given by
ShibCo be voting stock. For a “Type C”, at least 80% of the fair market value of the
Apso’s assets must be obtained with voting stock. When cash is used, the liabilities will
also be considered other property. The $1 million cash for Otter stock plus the $2 million
liabilities is greater than 20% of Apso’s value ($12 million × 20% = $2.4 million).
Thus, only a “Type B” reorganization with Otter retaining its Apso stock will provide taxdeferred treatment.
pp. 7-10 and 7-12 to 7-15

36.

Hoffman, Raabe, Smith, and Maloney, CPAs
5191 Natorp Boulevard
Mason, OH 45040
January 21, 2011
Ms. Xanna Jackson, President
Birdie Corporation
460 Lakeview Drive
Lake Oswego, OR 97034
Dear Ms. Jackson:
This letter is in response to your request for guidance regarding the merger of Birdie
Corporation with Bogie Corporation through a tax-free corporate reorganization transaction.
The types of reorganizations considered for this restructuring are the “Type A” consolidation,
the “Type C” merger, and the acquisitive “Type D.” Should you like to consider any other
types of reorganizations, we would be happy to explain those options as well.

With a “Type A” consolidation, Birdie and Bogie would create a new corporation to receive
all of the assets of each corporation. Since it will be a new corporation, it takes a new name,
such as Par Corporation. A new name would be beneficial as Bogie has a tarnished name and
reputation. In exchange for all of Birdie’s and Bogie’s assets and liabilities, they would
receive all of Par’s stock. This new stock would be given to the shareholders of Birdie and
Bogie in exchange for all of their stock in the old corporations. After the exchange of stock,
Birdie and Bogie corporations would liquidate and cease to exist.
The “Type C” reorganization would not be beneficial as Bogie, the larger corporation, would
be the acquiring corporation and remain in existence after the merger. Since Bogie has a
tarnished name, the merged company would be saddled with Bogie’s unfavorable reputation.
An acquisitive “Type D” reorganization may be the best choice if the patent that Birdie
developed for the new putter is not transferrable. It will also be beneficial if Birdie has
established loyal customers; the resulting merged company would retain the Birdie name and
recognition. This transaction entails Bogie transferring all of its assets and liabilities to Birdie
in exchange for a controlling interest in Birdie’s stock. This stock is transferred to Bogie’s
shareholders in exchange for all of their stock. Bogie then liquidates and ceases to exist.
Birdie would be the surviving corporation holding the assets of both Bogie and Birdie.
Should you have any further questions regarding these types of reorganizations, please contact
us at your earliest convenience.

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Corporations: Reorganizations

7-17

Sincerely,

Jack Morris, CPA
pp. 7-9 to 7-11 and 7-13 to 7-19
37.

PeekCo’s acquisition of the original shareholder’s stock is a taxable transaction. The original
shareholder recognizes $200,000 gain ($250,000 value – $50,000 basis). Since this transaction
does not occur in close proximity to the “Type B” reorganization, the IRS may consider this
stock acquisition as a separate transaction. Thus, the acquisition of the stock for cash will not
destroy the “Type B” acquisition of the remaining stock. The “Type B” requirement of voting
stock for stock is met as well as the acquisition of at least 80% of the stock. Even though three
years separate the transactions, the IRS may view the acquisition of the original shareholder’s
stock as part of an integrated plan and disallow the “Type B” restructuring treatment, because
part of the stock was acquired with cash. pp. 7-10, 7-12, and 7-13

38.

Hoffman, Raabe, Smith, and Maloney, CPAs
5191 Natorp Boulevard
Mason, OH 45040
November 18, 2011
Ms. Lisa Spring, WireCo CEO
3443 E. Riverbank Road
Walla Walla, WA 99362
Dear Ms. Spring:
This letter is in response to your question as to how to arrange the acquisition of WireCo by
Frame Corporation and have it qualify for tax-favored treatment. We believe that it is possible
for the transaction to qualify as a “Type C” reorganization even with Frame not acquiring all
of the assets of WireCo. Our conclusions are based on the following facts. WireCo has a net
value of $700,000 ($1 million assets – $300,000 liabilities). Frame is willing to acquire the
plant and equipment with a net value of $650,000 ($850,000 value – $200,000 liabilities). The

net value of the headquarters is $50,000 ($150,000 value – $100,000 mortgage).
A “Type C” reorganization requires that “substantially all” of the assets of WireCo be
transferred to Frame in exchange for stock and other property. While there is no definition of
“substantially all” in the Internal Revenue Code, the IRS requires at least 90% of the asset’s
net value or 70% of the gross value to be transferred. The suggested transaction will meet
these guidelines because the plant and equipment’s $650,000 net value is more than 90% of
the $700,000 total net value ($650,000/$700,000 = 93%). Further, the $850,000 gross value of
these assets is greater than 70% of the $1 million total gross value. Therefore, if Frame will
exchange its voting stock for the plant and equipment, the headquarters is distributed to the
shareholders, and WireCo then liquidates, the transactions will qualify as a “Type C’
reorganization.
If I can be of further service regarding this transaction, please don’t hesitate to contact me.
Sincerely,
Glenn Allen, CPA
pp. 7-13 to 7-16

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7-18
39.

2012 Corporations Volume/Solutions Manual
The division of Shelty could be structured as a split-up “Type D” reorganization. It cannot be
a spin-off or a split-off because Shelty must cease to exist to meet the desires of the owners.
Shelty would create three new corporations and transfer each of the divisions (dog food, retail,
and healthy treats) to one of the new corporations in exchange for all of its stock. Jane, Claire,
and Brian would exchange their Shelty stock for the stock of one of the newly created

corporations. With no assets left, Shelty would liquidate and cease to exist. pp. 7-17 to 7-19,
Example 23, and Figure 7.6

40.

Hoffman, Raabe, Smith, and Maloney, CPAs
5191 Natorp Boulevard
Mason, OH 45040
February 17, 2011
President Robin Fernandez
Stapelia Corporation
2500 Cactus Road
Dodge City, Kansas 67801
Dear Robin:
This is a letter in response to your question regarding the division of Stapelia Corporation into
three separate corporations. Tax-favored treatment is available for this restructuring under the
corporate reorganization rules. This means that any gain recognized for tax purposes is
deferred to later years.
A divisive “Type D” reorganization would allow Stapelia to create two new corporations in
the states other than Kansas in which the landfills are located. In exchange for the landfills,
each new corporation would transfer all of its stock to Stapelia. At this point Stapelia has a
choice of how to distribute this stock to its shareholders. It can exchange the shares in the new
corporations for a portion of the Stapelia stock (called a split-off) or merely distribute the new
stock and not require any Stapelia stock to be returned (called a spin-off). The important
factor is that the stock of the new corporations ends up in the hands of the Stapelia
shareholders.
If I can be of further service regarding this transaction, please don’t hesitate to contact me.
Sincerely,
Claire Cote, CPA
pp. 7-17 to 7-19 and Figure 7.5

41.

Komondor can use a “Type E” reorganization to accomplish its restructuring. An exchange of
bonds for bonds is not taxable as long as the face value of the bonds does not change. The fact
that the interest to be received will increase does not create income until the higher interest is
paid. If the exchange of common stock for preferred stock occurs before the acquisition by
SheenCo, Tyee will receive 250 shares of preferred stock in exchange for 1,000 shares of
common. The purchase of common stock by SheenCo is not a taxable event. pp. 7-5, 7-18,
and 7-19

42.

The transfer of Titan Arum to Rose qualifies as a “Type F” reorganization. This is merely a
change of name and location. If this restructuring could qualify as a “Type A” or “Type C” as
well as a “Type F” reorganization, according to the IRS, the “Type F” treatment prevails.
p. 7-22

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Corporations: Reorganizations

7-19

43.

Neither TinCo or ZinCo recognize gain from the “Type G” reorganization. TinCo has a

cancellation of debt (COD) of $450,000 ($1 million debt – $550,000 asset value), which must
first offset tax benefits transferred to ZinCo and lastly reduces the basis of depreciable assets.
However, ZinCo may elect to offset the depreciable assets first. Accordingly, the basis in the
depreciable assets is reduced to zero, and the remaining COD of $50,000 ($450,000 –
$400,000 asset basis) reduces the NOL tax benefit to $150,000 ($200,000 – $50,000).
pp. 7-22, 7-23, and Example 29

44.

Some of the tax issues to consider are listed below. This is not an exhaustive list of possible
issues.
•

Was there a sound business reason for acquiring the assets of the wine store?

•

Was the wine store a corporation or a sole proprietorship?

•

Would the acquisition of the wine store qualify as a “Type A” or “Type C” reorganization?

•

After the reorganization, would the continuity of business enterprise test be met?

•

Will the dropping of the wine business into a separate corporation qualify as a “Type D”

split-off?

•

Does the creation of the separate corporation for the wine business have a sound business
purpose for Norwich or was it strictly a shareholder purpose to get rid of Joe?

pp. 7-10, 7-13 to 7-15, 7-17, 7-18, 7-25, and 7-26
45.

Some tax issues to consider are listed below. This should not be considered an exhaustive list
of possible issues.
•

Does Fierce have a sound business purpose for this merger?

•

Will the built-in capital losses be available for use by Fierce?

•

Could the IRS disallow the carryovers by applying § 269?

•

If the capital losses are available, will they be restricted by the § 382 limitation?

•

Does Fierce meet the continuity of business enterprise requirement for tax-free
reorganization treatment?

•

Will the dissenting shareholders prevent Float from obtaining a majority approval for the
merger?

•

Fierce should evaluate the existence of Float having unknown contingent liabilities. After
the merger, these liabilities would be the responsibility of Aqua.

•

Is the continuity of ownership interest requirement for Float shareholders met?

•

What is the amount and character of the gain that must be recognized by the shareholders
receiving cash?

•

Will this qualify as a “Type A” reorganization?

pp. 7-5, 7-9, 7-10, 7-25 to 7-30, 7-36, 7-38, and Figure 7.7
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7-20

2012 Corporations Volume/Solutions Manual

46.

The ability to utilize attributes from an acquired corporation requires that the acquired merge
with the acquiring corporation and then liquidate. In a “Type B” reorganization, RetrieverCo
would continue to exist and would utilize the capital loss carryforwards itself. Golden
Corporation cannot use RetrieverCo’s capital loss. p. 7-27

47.

The amount of Border NOL that Collie can utilize in the current year is limited to the amount
of the year remaining or 33% (120/365 or 120/366). The § 382 limit does not apply because
there was less than a 50 percentage point change in ownership. The amount available is
determined as follows: 500,000 × 33% = 165,000.
Student answers may vary from $163,934 to $165,000 depending how 120/365 (120/366) was
rounded to a percentage.
Next year, Collie can take the remaining NOL because there is no § 382 limitation.
pp. 7-28 to 7-33

48.

The amount of Springer NOL that Spaniel can utilize in the current year is limited by § 382.
The amount available is determined as follows: $2 million × 4% = $80,000. pp. 7- 27 to 7-31

49.

This exchange qualifies as a “Type E” reorganization. Jack will therefore be required in the
year of exchange to recognize a $30,000 capital gain due to boot ($180,000 – $150,000). The
interest on the $150,000 bond is $9,000 ($150,000 × 6%) and on the $180,000 bond is $7,200
($180,000 × 4%). Using a 6% discount factor the values of the two bonds are as follows.
Option

Amount

Tax
Rate

Face Value
Interest

$150,000
9,000

25%

Face value
Interest
Exchange

$180,000
7,200
30,000 ×

25%
15%

Net of
Tax

PV
Factor

Net Present
Value

=
=

$150,000 ×
6,750 ×

.558
7.360

=
=

$ 83,700
49,680
$133,380

=
=
=

$180,000 ×
.558
5,400 × 7.360
4,500 Tax

=
=
=

$100,440
39,744
(4,500)*
$135,684

*Amount lost to tax due on boot.
Since the net present value of the $180,000 bond is higher, this exchange is beneficial to Jack.
p. 7-19
50.

The maximum value of State Corporation’s NOL to be used by Global Corporation is
$118,932. Since the § 382 limitation applies to this transaction (shareholders have an 80
percentage point change in ownership), the computation of the value of the NOL is as follows.
•

Net value of State’s assets: $800,000.

•

Section 382 limitation: $800,000 × 5% = $40,000.

•

Number of years to fully utilize the NOL: $560,000/$40,000 = 14 years.

•

Yearly tax benefit of the NOL: $40,000 × 34% tax rate = $13,600.

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Corporations: Reorganizations
•

7-21

Present value of annuity: $13,600 × 8.745 (discount factor for 7% for 14 years) =
$118,932.

pp. 7-28 to 7-33 and Example 36
51.

The maximum amount of stock that Taipa Corporation should offer for Kers Corporation’s
assets should be worth no more than $626,812. This would equate to 6.27% of Taipa’s stock
($626,812/$10 million). Thus, the § 382 limitation applies to the NOL because Kers
Corporation shareholders have a greater than 50 percentage point change in their ownership
(100% to 6.27%). The computation of the value of Kers is as follows.
•

Net value of Kers assets: $780,000 value – $230,000 liabilities = $550,000.

•

Section 382 limitation: $550,000 × 9% = $49,500.

•

Number of years to fully utilize the NOL: $346,500/$49,500 = 7 years.

•

Yearly tax benefit of the NOL: $49,500 × 34% tax rate = $16,830.

•

Present value of annuity: $16,830 × 4.564 (discount factor for 12% for 7 years) = $76,812.

•

Value of Kers: $550,000 + $76,812 = $626,812.

pp. 7-30 and 7-32
52.

The § 382 limitation applies because Tulip, Inc. shareholders have an equity shift, from
owning 100% of Tulip to 25% of Tree. Thus, the usage of the carryovers is limited in the
current year and is computed as follows.
•

Net value of Tulip’s assets: $2,000,000.

•

Section 382 limitation: $2,000,000 × 6% = 120,000.

•

Capital loss carryover allowable: $60,000 to the extent of capital gains for the year.

•

Business credit allowable:

•

•

Calculate tax liability after capital loss: $600,000 – $60,000 = $540,000 × 34% =
$183,600.

•

Regular tax liability if full § 382 limitation available: $600,000 – $120,000 =
$480,000 × 34% = $163,200.

•

Subtract: $183,600 – $163,200 = $20,400.

Tree may use $60,000 of the capital loss carryover and $20,400 of the business credits.
Tree will have a $20,000 capital loss ($80,000 – $60,000) and a $14,600 business credit
carryover ($35,000 – $20,400) to next year.

pp. 7-30, 7-32, 7-34, and Examples 41 and 42
53.

Since the Puli shareholders experienced more than a 50 percentage point change in their
ownership, the § 382 limits apply. The net present value (NPV) of the Puli business credits to
VizslaCo is $45,553 computed as follows.
Section 382 limitation: $500,000 × 5% = $25,000.

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7-22

2012 Corporations Volume/Solutions Manual
Converting the § 382 limitation into a credit limitation: $25,000 × 35% = $8,750.
Number of years required to use the credit: $61,250 ÷ $8,750 = 7 years.
NPV: $8,750 × 5.206 factor (7 years @ 8%) = $45,553.
pp. 7-30 and 7-32

54.

The contemplated reorganization could be either a “Type A” or a “Type C” depending on
whether state merger laws are met. The maximum amount of Shepherd stock that the RentCo

shareholders should expect is 33,311 computed as follows.
Net yearly cash flow: $50,000 × (1 – 34%) = $33,000.
NPV of yearly cash flow: $33,000 × 8.514 factor (20 years @ 10%) = $280,962.
Net cash flow from sale of land: $400,000 – $150,000 = $250,000 × 15% (capital gains rate)
= $37,500; $400,000 – $37,500 = $362,500.
NPV of cash flow from sale of land: $350,000 × .149 (20 years @ 10%) = $54,013.
NPV of the RentCo stock: $280,962 + $54,013 = $334,975.
$334,975 ÷ $10 per share = 33,498 shares of Shepherd stock.
pp. 7-32 and 7-36

55.

Issues that should be considered include the following.
•

Why do Henri and Simone think Manx cannot expand further in the pet product industry?

•

Why does LaPerm lack strategic marketing and have ineffective management?

•

What is the net present value to Manx of the LaPerm’s NOL and business credit carryovers? That is, how much would Manx be willing to pay for these tax attributes?

•

Does Manx have a sound business purpose for the acquisition of LaPerm?

•

Would the acquisition meet the continuity of interest doctrine?

•

Would the acquisition meet the continuity of business requirement?

•

Is Manx willing to accept all of LaPerm’s liabilities, and does LaPerm have contingent
liabilities?

•

Will Marcel agree to a tax-free reorganization and receive stock in Manx or will Marcel
prefer to receive cash?

pp. 7-25 to 7-33

The answers to the Research Problems are incorporated into the Instructor’s Guide with Lecture
Notes to accompany the 2012 Annual Edition of SOUTH-WESTERN FEDERAL TAXATION:
CORPORATIONS, PARTNERSHIPS, ESTATES & TRUSTS.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Solution manual SW federal taxation corporations partnerships estates and trusts 35e by hoffman chapter 07

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