- A 'Type G' reorganization under Section 368(a)(1)(G) is:
Answer: A reorganization of insolvent corporations - specifically, the transfer of assets of an insolvent corporation to another corporation in a bankruptcy or insolvency proceeding.
Type G reorganizations apply to financially distressed corporations in bankruptcy proceedings - allowing tax-free restructuring of insolvent entities. Answer D is correct. Government involvement (A), guaranteed stock (B), and general fallback (C) are not the correct descriptions.
- Which of the following reorganizations is considered 'divisive' rather than 'acquisitive'?
Answer: Type D (divisive) reorganization - a corporation transfers part of its assets to a newly formed or existing controlled corporation, then distributes the stock of the controlled corporation to its shareholders under Section 355.
Type D can be divisive (spin-off, split-off, split-up) - the corporation transfers assets to a controlled corporation and distributes the subsidiary's stock to shareholders. Answer D is correct. Types A, B, and C are acquisitive reorganizations.
- A Type E reorganization is a:
Answer: Recapitalization - a reorganization within a single corporation that changes its capital structure, such as exchanging bonds for stock, preferred stock for common stock, or modifying debt terms.
A Type E reorganization is a recapitalization - a single-corporation restructuring of its capital (e.g., swapping bonds for equity, reclassifying stock). Answer D is correct. Mergers (A) are Type A. Stock-for-stock (B) is Type B. Divisive (C) is Type D.
- The 'solely for voting stock' requirement applies to which reorganization types?
Answer: Type B and Type C reorganizations - these reorganizations have strict 'solely for voting stock' requirements that disqualify the transaction if any cash or other property is included.
Types B and C require solely voting stock - even de minimis cash disqualifies them. Type A is more flexible and allows some boot. Answer C is correct. Type A is flexible (A). Not all types have this strict requirement (B). Types E and F are internal reorganizations (D).
- In a tax-free reorganization, the target corporation's tax attributes (NOL carryovers, credit carryovers, E&P) carry over to the acquiring corporation, but are subject to:
Answer: Section 382 limitations on the use of NOL carryovers - an ownership change of more than 50 percentage points limits annual NOL usage to the value of the target's stock multiplied by the applicable federal rate.
Section 382 limits the use of acquired NOLs after an ownership change - the annual limit is the value of the target times the AFR at acquisition. Answer A is correct. Attributes carry over but are limited (B). Limitations apply (C). Section 382 applies broadly regardless of acquirer type (D).
- A tax-free reorganization protects target shareholders from immediate gain recognition. However, the deferred gain:
Answer: Is preserved in the carryover basis of the acquirer stock received - when the shareholder ultimately sells the acquirer stock, the previously deferred gain is recognized at that time.
Reorganization nonrecognition is temporary deferral - the gain is embedded in the carryover basis of the acquirer stock and recognized when that stock is eventually sold. Answer A is correct. Gain is deferred, not excluded (B). No one-year rule forgives the gain (C). Step-up at death does eliminate the gain (D - this is actually true but the question asks about what happens to the deferred gain in general, not at death).
- A Type F reorganization is a:
Answer: Mere change in identity, form, or place of organization of a single corporation - such as reincorporating in a different state or changing the corporation's name.
A Type F reorganization is a mere change in identity, form, or place of organization - the simplest type, such as moving incorporation from one state to another. Answer B is correct. Foreign conversions (A, C) have specific rules. C-to-S conversions (D) are not reorganizations.
- When a corporation distributes appreciated property (not its own stock) in a reorganization exchange, the corporation:
Answer: Generally recognizes gain as if it sold the property at FMV - the distribution of appreciated property in connection with a reorganization triggers corporate-level gain recognition under Section 311(b) or the reorganization provisions.
Distributing appreciated property in a reorganization generally triggers corporate-level gain - the corporation treats it as a deemed sale at FMV. Answer D is correct. Gain is recognized (A). Installment election doesn't apply to property distributed in reorganizations (B). Holding period doesn't eliminate recognition (C).
- A reverse triangular merger (Type A) is a reorganization where:
Answer: A subsidiary of the acquirer merges into the target corporation, leaving the target as a surviving subsidiary of the acquirer - the target's shareholders receive parent corporation stock.
In a reverse triangular merger, the subsidiary merges into the target (the opposite direction of a forward merger), leaving the target as a surviving subsidiary. Answer B is correct. Parent merging into target (A) is a direct Type A. Asset transfer (C) describes a Type C. Two subsidiary merger (D) is a different structure.
- A Type A reorganization under Section 368 is:
Answer: A statutory merger or consolidation - the target corporation merges into the acquiring corporation (or a new corporation) under applicable state law, with target shareholders receiving acquirer stock.
A Type A reorganization is a statutory merger or consolidation under state law - the most flexible reorganization type since it permits boot up to the limits allowing tax-free treatment. Answer B is correct. Stock-for-stock (A) describes a Type B. Asset acquisition with stock (C) describes Type C. Divisive (D) describes Type D.
- A Type C reorganization requires:
Answer: The acquirer to obtain substantially all of the target's assets in exchange for solely voting stock of the acquirer - with the target subsequently liquidating.
Type C is an asset acquisition using solely voting stock, with the target acquiring 'substantially all' of its assets and then liquidating. Answer B is correct. Stock-for-stock (A) describes Type B. Divisive (C) describes Type D. Subsidiary merger (D) describes a triangular reorganization.
- The 'substantially all' requirement for Type C reorganizations and certain Type A reorganizations generally means:
Answer: At least 90% of the FMV of net assets and 70% of the FMV of gross assets must be transferred - though courts and the IRS may apply the standard flexibly based on facts and circumstances.
The IRS safe harbor for 'substantially all' is 90% of net assets and 70% of gross assets FMV, though qualitative factors also matter. Answer B is correct. 51% (A) is too low. Not literally all assets (C). Dollar amounts (D) are not the standard.
- The 'continuity of interest' requirement for tax-free reorganizations requires that:
Answer: A substantial portion (historically interpreted as at least 40%) of the consideration paid to target shareholders must consist of acquirer stock - preserving target shareholders' equity interest in the combined enterprise.
Continuity of interest requires that a meaningful portion of the consideration be equity in the acquirer - target shareholders must continue as equity holders in the combined enterprise. Answer A is correct. Continuous business operation (B) is the continuity of business enterprise requirement. The target often ceases to exist (C). Shareholders can receive different consideration (D).
- The step transaction doctrine can cause a series of related transactions to be treated as a single transaction for tax purposes. In the context of reorganizations, this means:
Answer: If separate steps are mutually interdependent or pre-planned to achieve an overall result, the IRS may combine them and tax the result of the overall transaction - potentially disqualifying a reorganization that appears tax-free if viewed step by step.
The step transaction doctrine collapses pre-planned steps into a single transaction, potentially triggering gain on what appeared to be a series of tax-free steps. Answer C is correct. Independent analysis (A) is the opposite of the doctrine. Not just the first step (B). Applies to domestic transactions too (D).
- In a spin-off under Section 355, a shareholder who receives subsidiary stock:
Answer: Generally recognizes no gain or loss - the shareholder takes a basis in the subsidiary stock allocated from their original basis in the distributing corporation's stock.
In a qualifying Section 355 distribution, shareholders recognize no gain - basis is allocated between the original stock and the new subsidiary stock. Answer B is correct. FMV gain recognition (A) is the result of a taxable distribution. E&P ordinary income (C) applies only if Section 355 fails. No post-distribution holding period requirement (D).
- In a Section 351 transaction (contribution to a controlled corporation), 'boot' received by the transferor triggers:
Answer: Gain recognition equal to the lesser of the realized gain or the fair market value of the boot received - the nonrecognition treatment applies only to the stock received.
In Section 351, boot (non-stock consideration) triggers gain recognition limited to the lesser of realized gain or FMV of boot. Answer A is correct. Not necessarily ordinary income (B). Boot triggers recognition (C). Losses are not recognized even with boot in Section 351 (D).
- A Type B reorganization requires:
Answer: The acquirer to acquire control of the target (at least 80% of total voting power and value) using solely voting stock of the acquiring corporation - no cash or other property may be used.
Type B requires a stock-for-stock exchange using solely voting stock - the 'solely for voting stock' requirement is strict, meaning even one dollar of cash disqualifies the exchange. Answer D is correct. Asset acquisition (A) describes Type C. Merger (B) describes Type A. 80% of assets (C) is not the Type B test.
- Section 382 limitations following an ownership change apply to:
Answer: NOL carryovers and certain built-in losses - the annual limitation is the equity value of the loss corporation at the time of the ownership change multiplied by the applicable federal long-term tax-exempt rate.
Section 382 limits the use of NOLs and certain built-in losses after an ownership change, with an annual limit based on the company's equity value times the AFR. Answer C is correct. Not unlimited (A). NOLs are the primary limitation (B). Applies to public and private companies (D).
- The general requirements for a tax-free reorganization under Section 368 include:
Answer: A business purpose for the reorganization, continuity of business enterprise (the acquirer continues the target's business or uses the target's assets), and continuity of shareholder interest (target shareholders receive a meaningful amount of acquirer stock).
Tax-free reorganizations require business purpose, continuity of business enterprise, and continuity of shareholder interest (target shareholders must retain a meaningful equity interest in the acquirer). Answer A is correct. Cash consideration results in boot and potential gain recognition (B). IRS pre-approval is not required (C). Equal exchange ratios are not required (D).
- In a tax-free reorganization, when a target corporation's shareholder receives acquirer stock plus cash ('boot'), the tax consequence is:
Answer: Gain is recognized to the extent of boot received (the lesser of realized gain or boot), but the gain may be characterized as capital gain or dividend income depending on whether the exchange has the effect of a dividend distribution.
In reorganizations, boot triggers gain recognition limited to the lesser of realized gain or boot received. The character may be ordinary income (dividend) if the exchange has the effect of a dividend. Answer C is correct. The overall transaction remains partially tax-free (A). Boot triggers recognition (B). Losses are not recognized in reorganizations even with boot (D).
