You are to sketch out the moving parts for the reorganization transactions indicated in example 8 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 8: Type C reorganization and sale of loss asset. Assume the facts are the same as in Example 7, except that instead of selling the P stock, T sells the Y business and pays off C with the proceeds. T now recognizes a $50 loss on the sale of Y (Section 336 does not apply, because of Section 361(c)(4) and no other provision would deny T's loss, including Section 361(c)(1), which covers only distributions, not sales). On the liquidation, T recognizes no gain on the distribution of the $120 pf P stock (basis $20) under Section 361(c)(1). A also recognizes no gain under Section 354(a)(1) and takes a $40 basis in the P stock. P's results are the same as in Example 7. (Note the far superior results here in comparison with Example 7).

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

Pages: 12-205 and 12-206

Course: Taxation of Reorganizations & Liquidations

Transferor Corp (U) 1. Asset X-AB 20 FMV 120 2. Asset Y-AB 80 FMV 30 100 (50) Debt 30 S/HA - AB Stock 40 FMV Stock 120 CREDITOR ACOURING CORP P" TRANSFER) CURR T ASSET X 120 LASSEY 30 / ISLS 30 of stuck I TO PAY CREDITORI L e stock ise stuu 43 40 HV 120 stoly FOU 120 SHAREHOUER A TRANSFERUR O NO GAN/LUSS on ACIALE 36 (c) AB of p stuck (2000)= 100 NO GAN/LUSS DISRISTO A 361(c)(1) I CAN UN SALE t p stua AB 100/5= 20 Procuros 30 CM 10 ALUATION II BASI) INSTOCK I stuus sous 3 t REZUID 150 1 713 Slut o no GAIN (COSS ON BON - ONLY STJUS RECU) O Pistoa 103 = cho 358(10) 40 D ACQUIRING CARD - clo BASIS NX & Y ASSETS RECEIVE) UNDER 2362 CORPORATE REORGANIZATIONS 12-207 1 12.42[5] parity resul stock sold was $5). On the liquidation, I recognizes no gain on stock (basis $15, value $90) under $ 361(c)(1), and also recognizes no loss on the distribution of the Y business to A under $ 361(c)(1)(a 8 parity result in that gains, but not losses, are recognized on the disu tion of unqualified property. the Y business). A recognizes $30 of boot cain under $ 356(a)(1) (the Y business) and takes a $40 substituted basis in the P stock (and a $30 stepped-down basis in the Y business boot). P takes a $20 carryover basis for the X business and inherits all of T's tax history under $ 381). Thus, there is no heads-up tax planning here. EXAMPLE 8: Type C reorganization and sale of loss asset. Assume the facts are the same as in Example 7, except that instead of selling the P! stock, T sells the Y business and pays off C with the proceeds. T now recognizes a $50 loss on the sale of Y (8 336 does not apply, because of 8 361(c)(4) and no other provision would deny T's loss, including 8 361(c), which covers only distributions, not sales). On the liquidation, T recognizes no gain on the distribution of the $120 of P stock (basis $20) under $ 361(c)(1). A also recognizes no gain under $ 354(a)(1) and takes a $40 basis in the P stock. Ps results are the same as in Example 7.6% (Note the far superior results here in comparison with Example 7.) 0551 2018 it EXAMPLE 9: Type C reorganization and debt assumed. Assume the facts are the same as in Example 7, except that P assumes Ts debt to C (and consequently pays only $90 of voting stock). The acquisition is still a good Type C reorganization under Revenue Procedure 77-37 because T transferred 80 percent of its gross assets and 100 percent of its net assets to P. T recognizes no gain on the T-P exchange, and takes a minus $10 basis in the P stock ($20 less $30 of debt assumption).694 On the liquida- tion distribution of P stock (potential gain of $100), T recognizes no gain under $ 361(c)(1) and also recognizes no loss on the distribution of the Y business. A's results are the same as in Example 7, as are P's results. 07 238 2 S10930 EXAMPLE 10: Gain on retained asset. If the Y business has a $5 basi DO(i.e., a built-in gain instead of loss), T would have a recognized gain a $25 on the distribution of the Y business to A in Example 7 and Exampl 9 and also would have a recognized gain of $25 on the sale of the Y bus iness in Example 8. ibido201 0318 Sob ignon uest w 101 12032 27 to 99nedoka nch asida 30 bow dando o colo 09 The 1988 technical corrections amendments apparently did not change this res unless the anti-abuse regulatory authority in 88 361(b)(3) and 361(c)(3) is invoked, wh seems hinhly unlikely on these facts; they had their chance in 1986 and 1988. Transferor Corp (U) 1. Asset X-AB 20 FMV 120 2. Asset Y-AB 80 FMV 30 100 (50) Debt 30 S/HA - AB Stock 40 FMV Stock 120 CREDITOR ACOURING CORP P" TRANSFER) CURR T ASSET X 120 LASSEY 30 / ISLS 30 of stuck I TO PAY CREDITORI L e stock ise stuu 43 40 HV 120 stoly FOU 120 SHAREHOUER A TRANSFERUR O NO GAN/LUSS on ACIALE 36 (c) AB of p stuck (2000)= 100 NO GAN/LUSS DISRISTO A 361(c)(1) I CAN UN SALE t p stua AB 100/5= 20 Procuros 30 CM 10 ALUATION II BASI) INSTOCK I stuus sous 3 t REZUID 150 1 713 Slut o no GAIN (COSS ON BON - ONLY STJUS RECU) O Pistoa 103 = cho 358(10) 40 D ACQUIRING CARD - clo BASIS NX & Y ASSETS RECEIVE) UNDER 2362 CORPORATE REORGANIZATIONS 12-207 1 12.42[5] parity resul stock sold was $5). On the liquidation, I recognizes no gain on stock (basis $15, value $90) under $ 361(c)(1), and also recognizes no loss on the distribution of the Y business to A under $ 361(c)(1)(a 8 parity result in that gains, but not losses, are recognized on the disu tion of unqualified property. the Y business). A recognizes $30 of boot cain under $ 356(a)(1) (the Y business) and takes a $40 substituted basis in the P stock (and a $30 stepped-down basis in the Y business boot). P takes a $20 carryover basis for the X business and inherits all of T's tax history under $ 381). Thus, there is no heads-up tax planning here. EXAMPLE 8: Type C reorganization and sale of loss asset. Assume the facts are the same as in Example 7, except that instead of selling the P! stock, T sells the Y business and pays off C with the proceeds. T now recognizes a $50 loss on the sale of Y (8 336 does not apply, because of 8 361(c)(4) and no other provision would deny T's loss, including 8 361(c), which covers only distributions, not sales). On the liquidation, T recognizes no gain on the distribution of the $120 of P stock (basis $20) under $ 361(c)(1). A also recognizes no gain under $ 354(a)(1) and takes a $40 basis in the P stock. Ps results are the same as in Example 7.6% (Note the far superior results here in comparison with Example 7.) 0551 2018 it EXAMPLE 9: Type C reorganization and debt assumed. Assume the facts are the same as in Example 7, except that P assumes Ts debt to C (and consequently pays only $90 of voting stock). The acquisition is still a good Type C reorganization under Revenue Procedure 77-37 because T transferred 80 percent of its gross assets and 100 percent of its net assets to P. T recognizes no gain on the T-P exchange, and takes a minus $10 basis in the P stock ($20 less $30 of debt assumption).694 On the liquida- tion distribution of P stock (potential gain of $100), T recognizes no gain under $ 361(c)(1) and also recognizes no loss on the distribution of the Y business. A's results are the same as in Example 7, as are P's results. 07 238 2 S10930 EXAMPLE 10: Gain on retained asset. If the Y business has a $5 basi DO(i.e., a built-in gain instead of loss), T would have a recognized gain a $25 on the distribution of the Y business to A in Example 7 and Exampl 9 and also would have a recognized gain of $25 on the sale of the Y bus iness in Example 8. ibido201 0318 Sob ignon uest w 101 12032 27 to 99nedoka nch asida 30 bow dando o colo 09 The 1988 technical corrections amendments apparently did not change this res unless the anti-abuse regulatory authority in 88 361(b)(3) and 361(c)(3) is invoked, wh seems hinhly unlikely on these facts; they had their chance in 1986 and 1988