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Zeta Corporation is interested in acquiring Yoda Corporation as of August 7, 2014 because Yoda manufactures a chemical that is essential for the processing of

Zeta Corporation is interested in acquiring Yoda Corporation as of August 7, 2014 because Yoda manufactures a chemical that is essential for the processing of Zetas products. Zeta will transfer its stock for all of Yodas plants, equipment and inventory valued at $2,000,000 ($1,500,000 adjusted basis) and the $1,000,000 associated with those assets. Zeta plans on continuing to use Yodas assets in the manufacturing of the chemical it has been producing for the last seven years. However, Yoda will retain $50,000 cash and liquid assets to pay a product liability lawsuit. Besides transferring it assets and liabilities, Yoda has a $100,000 deficit in its earnings and profits account, $300,000 NOL, and $21,000 business credits to carry over to Zeta. Yoda is owned solely by Sam Kramer, who has a basis in his stock of $375,000.

a. What is the most favorable corporate reorganization form for the acquisition of Yoda by Zeta?

b. Assuming this transaction meets all of the requirements for a corporate reorganization under 368, how much gain/loss is realized by Zeta, Yoda and Kramer?

i. How much of the realized gain/loss is recognized?

ii. What is Zetas basis in the assets it receives and what is Kramers basis in his new Zeta stock?

c. What is the 362 limitation for the current year, assuming the Federal long-term tax-exempt rate is 6%?

d. What is the maximum amount that Zeta should be willing to pay for Yodas NOL and business credit carryovers if the acquisition occurs on December 31 of the current year? Assume that Zeta uses an 8% discount factor for evaluating the benefit of possible transactions and expects to be in the 35% tax bracket each year.

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