You are to sketch out the moving parts for the reorganization transactions indicated in example 2 for the transferor corp., the transferor corps shareholders, any creditor and transferee corp.

Also indicate the following consequences for the example (not all will be applicable to the example):

Transferor

1. Is there recognition of gain or loss on the reorganization?

2. What is the basis in the corp. Stock acquired in the exchange?

3. Is there recognition of gain or loss on the distribution to the transferor's shareholder?

4. Is there recognition of gain or loss on the sale of the stock received?

5. Is there gain or loss on the sale of any asset of the transferor?

Transferor corp shareholders

1. Is there gain or loss recognized on the receipt of boot?

2. What is the shareholders basis in the stock received?

Acquiring corp

1. What is the basis in the assets acquired from the transferor corp?

Remember to indicate how each transaction meets the Continuity of Interest test and if applicable the Substantially All Assets test for a Type C reorganization. To show that the transaction is a tax free reorganization and not a taxable sale. An example of schematic to follow which is based on example 6 is attached.

In the following examples, T holds two business assets, X (with a basis of $20 and a a value of $120) and Y (with a basis of $80 and a value of $30). T also has outstanding debts of $30 (held by C). T is wholly owned by an individual shareholder. A, whose basis for the T stock is $40 (with a value of $120). acquiring corporation P will acquire Ts assets in what is assumed to be a qualified Section 368 reorganization.

EXAMPLE 2: Merger for stock and cash. T merges into P for $60 of P stock and $60 in cash, which stock and cash are distributed to A upon the surrender of As T shares; P assumes Ts debt; this is a valid Type A reorganization under the continuity test of Revenue Procedure 77-37. T recognizes no gain or loss on the T-P exchange under Section 361(a) and 361(b)(1)(A), T basis in the P stock is $10 under Section 358 ($100 aggregate adjusted bases of Ts assets, less $60 in cash and less $30 of debt assumption), and T also recognizes no gain on the deemed liquidating distribution to A under Section 361(c)(1). A recognizes $60 of boot gain under Section 361(a)(1) and takes a $40 basis in the P stock (which has a remaining built-in potential gain of $20). Ps results are the same as in Example 1.

Textbook: Federal Income Taxation of Corporations and Shareholders, 7th Edition

Pages: 12-205 and 12-206

Course: Taxation of Reorganizations & Liquidations

CORPORATE REORGANIZATIONS 11 12.42[5] 12-205 [5] Examples and a value o has outstanding shareholder quiring corpo he following examples. Thold. olds two business assets. X (with a basis of $20 value of $120) and Y (with a basis of $80 and a value of $30). standing debts of $30 (held by C. T is wholly owned by an indi older. A, whose basis for the T stock is $40 (with a value of $120) " acquire T's assets in what is assumed to be a quali- fied 368 reorganization. EXAMPLE 1: Merger for solely stock. T merges into P for $120 or k which is distributed to A upon the surrender of A's T stock, P a sumes Ts debt to C. T recognizes no to C. T recognizes no gain or loss on the T-P exchange under 8 301(a), and I also recognizes no gain under 8 361(C ) on the distribution of the P stock to A even though Ts basis for the P stock was $70 under 88 358(a)(1) and 358(d)(1) ($100 aggregate adjusted bases of T's assets less $30 debt assumption). A recognizes no gain unde 8 354(a)(1) and takes a $40 basis in the P stock under $ 358(a)(1). P takes a carryover basis for Ts X and Y assets under $ 362(b) (and also inherits T's tax attributes under $ 381). EXAMPLE 2: Merger for stock and cash. T merges into P for $60 of P stock and $60 in cash, which stock and cash are distributed to A upon the surrender of A's T shares; P assumes Ts debt: this is a valid Type A re- organization under the continuity test of Revenue Procedure 77-37.891 T recognizes no gain or loss on the T-P exchange under $$ 361(a) and 361(b)(1)(A), T's basis in the P stock is $10 under $ 358 ($100 aggregate adjusted bases of T's assets, less $60 in cash and less $30 of debt as- sumption), and T also recognizes no gain on the deemed liquidating dis- tribution to A under 361(c)(1). A recognizes $60 of boot gain under $ 356(a)(1) and takes a $40 basis in the P stock (which has a remaining built-in potential gain of $20). P's results are the same as in Example 1. EXAMPLE 3: Merger for stock and securities. Assume the facts are the same as in Example 2, except that P gives $60 of long-term bonds ("se- curities") instead of cash. Again, I recognizes no gain or loss under $$ 361(a) and 361(b)(1)(A) and takes a $70 basis in the P stock and bonds, allocated $35 to each under $ 358(b)(1). On the deemed liquidat- ing distribution to A, T recognizes no gain on the P stock and bonds under $ 361(c)(1), since both the stock and bonds are qualified property under $ 361(c)(2)(B)(ii). A recognizes $60 of boot gain as in Example 2 and takes a $60 basis in the bonds and a $40 basis in the stock. P's re- sults are the same as in Example 1. EXAMPLE 4: Merger for stock and nonsecurity debt. Assume the facts are the same as in Example 2, except that P gives its own short-term not ) Exo L 691 Rev. Proc. 77-37, 1977-2 CB 568. o iside CORPORATE REORGANIZATIONS 11 12.42[5] 12-205 [5] Examples and a value o has outstanding shareholder quiring corpo he following examples. Thold. olds two business assets. X (with a basis of $20 value of $120) and Y (with a basis of $80 and a value of $30). standing debts of $30 (held by C. T is wholly owned by an indi older. A, whose basis for the T stock is $40 (with a value of $120) " acquire T's assets in what is assumed to be a quali- fied 368 reorganization. EXAMPLE 1: Merger for solely stock. T merges into P for $120 or k which is distributed to A upon the surrender of A's T stock, P a sumes Ts debt to C. T recognizes no to C. T recognizes no gain or loss on the T-P exchange under 8 301(a), and I also recognizes no gain under 8 361(C ) on the distribution of the P stock to A even though Ts basis for the P stock was $70 under 88 358(a)(1) and 358(d)(1) ($100 aggregate adjusted bases of T's assets less $30 debt assumption). A recognizes no gain unde 8 354(a)(1) and takes a $40 basis in the P stock under $ 358(a)(1). P takes a carryover basis for Ts X and Y assets under $ 362(b) (and also inherits T's tax attributes under $ 381). EXAMPLE 2: Merger for stock and cash. T merges into P for $60 of P stock and $60 in cash, which stock and cash are distributed to A upon the surrender of A's T shares; P assumes Ts debt: this is a valid Type A re- organization under the continuity test of Revenue Procedure 77-37.891 T recognizes no gain or loss on the T-P exchange under $$ 361(a) and 361(b)(1)(A), T's basis in the P stock is $10 under $ 358 ($100 aggregate adjusted bases of T's assets, less $60 in cash and less $30 of debt as- sumption), and T also recognizes no gain on the deemed liquidating dis- tribution to A under 361(c)(1). A recognizes $60 of boot gain under $ 356(a)(1) and takes a $40 basis in the P stock (which has a remaining built-in potential gain of $20). P's results are the same as in Example 1. EXAMPLE 3: Merger for stock and securities. Assume the facts are the same as in Example 2, except that P gives $60 of long-term bonds ("se- curities") instead of cash. Again, I recognizes no gain or loss under $$ 361(a) and 361(b)(1)(A) and takes a $70 basis in the P stock and bonds, allocated $35 to each under $ 358(b)(1). On the deemed liquidat- ing distribution to A, T recognizes no gain on the P stock and bonds under $ 361(c)(1), since both the stock and bonds are qualified property under $ 361(c)(2)(B)(ii). A recognizes $60 of boot gain as in Example 2 and takes a $60 basis in the bonds and a $40 basis in the stock. P's re- sults are the same as in Example 1. EXAMPLE 4: Merger for stock and nonsecurity debt. Assume the facts are the same as in Example 2, except that P gives its own short-term not ) Exo L 691 Rev. Proc. 77-37, 1977-2 CB 568. o iside