For each of the scenarios provided (1-12) answer the following questions: a. Is
ID: 2422343 • Letter: F
Question
For each of the scenarios provided (1-12) answer the following questions:
a. Is the transaction taxable?
b. If not, indicate the type of reorganization.
c. In 2 or 3 sentences, support your decision. For example, if you state the transaction is a Type B reorganization, explain why the transaction qualifies as a Type B reorganization.
Scenario:
Red Corporation owns assets valued at $500,000 and liabilities at $200,000, and White Corporation has assets valued at $1 million and liabilities of $150,000. Red transfers 75% of its voting stock to White in exchange for 90% of its assets. White distributes the Red stock, its own remaining assets, and all of its liabilities to the White shareholders. White then liquidates.
Green Corporation holds assets valued at $600,000 and liabilities of $150,000. Blue Corporation transfers $540,000 of its voting stock for 90% of Green’s assets. Blue assumes none of Green’s liabilities. Green distributes the Blue stock, its own retained assets, and its liabilities to the Green shareholders and then liquidates.
Orange owns assets valued at $400,000 and liabilities of $100,000. Yellow Corporation exchanges $200,000 of its voting stock and land worth $100,000 for all of Orange’s assets and liabilities. Orange distributes the Yellow stock to the Orange stockholders and retains the land.
Apricot Corporation moves its headquarters and incorporation from Rochester, New York, to Santa Fe, New Mexico. It changes its name to Chile Pepper, Inc.
Pink Corporation holds assets valued at $500,000 and liabilities at $100,000. Black Corporation transfers $350,000 of its voting stock and $50,000 of nonvoting stock for all of Pink’s voting and nonvoting stock. Pink becomes a subsidiary of Black.
Gray Corporation’s paperclip division owns assets valued at $300,000 and liabilities of $50,000. The staple division holds assets valued at $900,000 and liabilities of $150,000. Gray would like the two divisions to be separate corporations. It creates Silver Corporation and transfers all of the paperclip division assets and liabilities in exchange for 100% of Silver’s stock. Gray then distributes the Silver stock to its own shareholders in exchange for 25% of their stock in Gray. The divisions have been in existence for 10 years.
Purple holds assets valued at $800,000 and liabilities at $200,000. Brown Corporation transfers $280,000 of its voting stock for 60% of Purple’s assets and all of its liabilities. Purple distributes the Brown stock and its remaining assets to the Purple shareholders. Purple then liquidates.
Rust Corporation holds assets valued at $500,000 and liabilities at $150,000. Beige Corporation transfers $350,000 of its voting stock and $30,000 in cash for all of Rust’s assets and assumes 80% of its liabilities. Rust distributes the Beige stock, cash, and the remaining Rust liabilities to its shareholders and then liquidates.
Gold Corporation owns assets valued at $850,000 and liabilities at $800,000. To keep its creditors from foreclosing, Gold creates a new corporation, Fish, Inc., and transfers all of Gold’s assets to Fish under the guidance of the state court. The creditors received $800,000 of Fish stock, and the former Gold shareholders receive the remaining shares in Fish.
Cyan Corporation holds assets valued at $100,000 with liabilities of $20,000. Coral Corporation has assets valued at $900,000 with liabilities of $100,000. Cyan exchanges 80% of its voting stock for 40% of Coral’s assets and liabilities. Coral distributes the Cyan stock and the remaining Coral assets and liabilities to the Coral shareholders. Coral then liquidates.
Fuchsia Corporation obtained 40,000 shares of Slate Corporation’s stock four years ago. In the current year, Fuchsia exchanges 20% of its stock for 42,000 of the remaining 60,000 shares of Slate stock. After the transaction, Fuchsia owns 82,000 of the 100,000 Slate shares outstanding.
Chartreuse Corporation has two lines of business (water purification and mining), which have been conducted for the past 20 years. Chartreuse’s shareholders decide that it would be best to split Chartreuse into two corporations. The assets and liabilities of the water purification plant are transferred to Aqua Corporation in exchange for all of its stock. The mining division’s assets and liabilities are exchanged for all of the stock in Copper Corporation. The Aqua and Copper stock is distributed to the Chartreuse shareholders in return for all of their Chartreuse stock. Chartreuse then liquidates.
Explanation / Answer
(1) The transaction is not taxable.
TypeC reorganization as the more than 80% of the assets are bought by the acquirer company from the acquiree company. And then the selling entity i.e. White corporation has liquidated.
(2) The transaction is not taxable.
TypeC reorganization as more than 80% of the assets are bought by the acquirer company from the acquiree company. And after distribution of the assets and liabilities and Blue Stock Green liquidates.
(3) The transaction is taxable. Here the acquirer has also acquired land from the seller worth $100,000 apart from 50% of voting rights. Hence the transaction is partially taxable. TypeC Reorganizaion.
(4) The transaction is not taxable.
The type of Reorganization is TypeD as a seperate entity has been established and the same has been shifted from Rochester to New Mexico.
(5) The transaction is not taxable.
TypeB Reorganization as all the assets of Pink corporation have been transferred to Black Corporation and more than 80% of stock has been transferred to Pink corporation by Black Corporation.
(6) The transaction is not taxable.
Split off TypeD Reorganization as Gray Corporation has different entities with some shareholders on ly retaining it in the original shares of the corporation and some have exchanged their shares for the shares of the new Entity.
(7) The transaction is not taxable.
TypeA reorganization as Brown corporation has transferred $280,000 voting rights against 60% assets and all liabilities of Purple Corporation and furter the selling entity i.e.Purple Corporation is liquidated.
(8) The transaction is partially taxable.
TypeC reorganization as the purchasing company has bought more than 80% of the selling company's assets and cash of $30,000 is used as consideration which will be taxable as consideration other than stock has been used.
(9) Transaction is not taxable.
Spin-off TypeD transaction as Gold Corporation has created new entity named Fish Inc. and the existing shareholders recieve shares in the new entity.
(10) Transaction is not taxale.
TypeC reorganization as the acquirer has acquired at least 80% of the acquiree's assets and further more the selling entity has been liquidated.
(11) Transaction is not taxable.
TypeB reorganization as the acquirer has acquired more than 80% of the acquiree's stock and the acquiree company has become the subsidiary of the acquirer company.
(12) Transaction is not taxable
Split-up TypeD reorganization as the company Chartreuse has created several companies and tranferred its assets and liabilities to them and further more liquidates itself.
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