Question
1.Parentis Corporation is going to acquire Bullseye Corporation by merging Bullseye into Parentis in a statutory merger under state law.Bullseye has $5 million of assets
1.Parentis Corporation is going to acquire Bullseye Corporation by merging Bullseye into Parentis in a statutory merger under state law.Bullseye has $5 million of assets (adjusted basis is $1.6 million) and a single bank loan in the amount of $1 million.Bullseye has 4,000 shares outstanding owned by ten individuals.Consider the tax consequences of each of the following independent scenarios, focusing on whether the acquisition will qualify as a tax-free reorganization.You may cross-reference between answers to the extent your explanations are duplicative but be clear about what you are referencing.
a.Bullseye shareholders receive consideration in the form of 75% nonvoting Parentis preferred stock (it is not nonqualified preferred) and 25% a promissory note payable by Parentis.
b.Bullseye shareholders that own 40% of the stock receive $400,000 each of Parentis voting common stock and the other six Bullseye shareholders receive $400,000 cash each.
c.Same as previous (b) except that the after the merger deal was signed, the value of Parentis' stock dropped and thus the 4 shareholders that received Parentis stock in exchange for their 40% of Bullseye received only $250,000 each of Parentis stock (but the same number of shares as outlined in the deal).
d.Each Bullseye shareholder receives $400,000 of Parentis stock.Pursuant to a binding agreement entered into prior to the merger, 6 of the former Bullseye shareholders (who held 60% of the Bullseye stock), sell their new Parentis shares for cash to a third party three weeks after the merger.
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