1- ABC Corporation is merging into Dallas Corporation under state law requiremen

Question

1- ABC Corporation is merging into Dallas Corporation under state law requirements. ABC transfers assets worth $300,000 to Dallas. ABC receives 30,000 shares of Dallas stock and $200,000 cash. ABC transfers the Dallas stock, $200,000 cash, and all of its liabilities ($50,000) to its shareholder, Shoe, in exchange for all of his ABC stock (basis $100,000). ABC then liquidates. How is this transaction treated for tax purposes?

Since this qualifies as a “Type A” reorganization, Shoe recognizes no gain.

Since this qualifies as a “Type C” reorganization, Shoe recognizes a $200,000 gain.

Since this qualifies as a “Type A” reorganization, Shoe recognizes a $150,000 gain.

Since this does not qualify as a reorganization, Shoe recognizes a $150,000 gain.

2- AIM Corporation transfers all of its assets, basis of $440,000 and FMV of $700,000, to MDC Corporation. AIM receives voting stock in MDC valued at $500,000 and MDC assumes $200,000 of AIM's liabilities. AIM distributes the MDC voting stock to its shareholders and is liquidated. Which, if any, of the following statements regarding this transaction is correct?

a. AIM has a realized gain of $60,000 and a recognized gain of $0.
b. AIM has a realized gain of $60,000 and a recognized gain of $200,000. c. AIM has a realized gain of $260,000 and a recognized gain of $0.
d. AIM has a realized gain of $260,000 and a recognized gain of $200,000.

3- MPC Corporation had net assets with a fair market value of $4 million and an NOL carryforward of $3.0 million. Last year, MPC’s shareholders received 40% of AIM stock in a transaction qualifying as a reorganization. The long-term tax- exempt rate at that time was 6%. What is the maximum amount of MPC’s NOL available to offset AIM’s $2,000,000 income for the current year?

$0.

$180,000.

$240,000.

$2,000,000.

Explanation / Answer

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"Since this qualifies as a “Type A” reorganization, Shoe recognizes a $150,000 gain." is correct Cost of Assets        300,000 Cash        200,000 Shares        100,000        300,000 Shoe Shares        100,000 Consideration Cash        200,000 Liabilities           50,000        250,000 Gain        150,000 Type A reorganization allows the buyer to use either voting stock or nonvoting stock, common stock or preferred stock, or even other securities. It also permits the buyer to use more cash in the total consideration because the law does not stipulate a maximum amount of cash that may be used. At least 50% of the consideration, however, must be stock in the acquiring corporation. In addition, in a Type A reorganization, the acquiring corporation may choose not to purchase all the target’s assets. For example, the deal could be structured to allow the target to sell off certain assets separately and exclude them from this transaction.

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