Parent Corporation and its wholly owned Subsidiary Corporation wish to acquire the stock of Target Corporation. Target has outstanding 100,000 shares of common stock and $300,000 of convertible debentures owned by several unrelated individuals. The market price of the Target stock and the conversion ratio of the debentures make it unlikely that any debentures will be converted in the near future.

a. Parent proposes to acquire the Target stock in exchange for Parent voting stock, and to purchase the Target convertible debentures for cash. Will the cash payment for the Target convertible debentures violate “the solely for voting stock” requirement of Code Sec. 368(a)

(1)(B)? Will the “control” requirement be met if Parent purchases only

$200,000 of the Target debentures?

b. What are the tax consequences to the Target debenture holders if they exchange their debentures for Parent corporation debentures instead of cash? Would your answer change if the Target debenture holders exchanged their debentures for Parent voting stock instead of Parent corporation debentures?

c. Will the transaction qualify as a Type B reorganization if Parent acquires the Target stock solely in exchange for Parent voting stock and then immediately transfers the Target stock to Subsidiary Corporation?

d. Would the transaction qualify as a Type B reorganization if Parent transferred Parent voting stock to Subsidiary Corporation, and then Subsidiary acquired the Target stock in exchange for Parent voting stock? Would the transaction qualify if Subsidiary acquired the Target stock for a combination of Parent voting stock and Subsidiary voting stock?