Western, Inc. is a corporation located in California. In June of the current yea

Question

Western, Inc. is a corporation located in California. In June of the current year, Western moves to Georgia and changes its name to Southern Corporation. Its sole shareholder, Dharma, exchanges all of her stock in Western and receives all of the stock in Southern. Select one:

a. This transaction qualifies as a "Type F" reorganization.

b. This is treated as a liquidation of Western and incorporation of Southern. Thus, gain can be recognized on the liquidation of Western.

c. This transaction qualifies as a "Type E" reorganization.

d. This move has no tax significance for Federal purposes.

Explanation / Answer

The transaction qualifies as a "Type E " reorganisation as in type E reorganisation a recapitalization transaction involves the exchange of stocks and securities for new stocks, securities or both by a corporation's shareholders. The move concerns just one company and the reconfiguration of the company's capital structure. Possible scenarios include a stock-for-stock recapitalization plan, a bonds-for-bonds move and a stocks-for-bonds transaction.

Therefore in the given case Western Inc changes its name to southern corporation in exchange all of her stock in Southern.

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