Ch17IM - 301 Chapter 17 Corporate Reorganizations SUMMARY...

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© 2009 CCH. All Rights Reserved. Chapter 17 301 Chapter 17 Corporate Reorganizations SUMMARY OF CHAPTER This is the capstone chapter in corporate taxation. Students must understand corporate formations (Code Sec. 351), distributions and redemptions (Code Secs. 301-304, 311, 316), and liquidations (Code Secs. 331-338) before reorganizations become meaningful. Thus, Chapters 13-15 should be reviewed as needed. Types of Corporate Reorganizations ¶17,001 Statutory De f nitions There are seven basic types of corporate reorganization de f ned in Code Sec. 368. They are referred to by the subparagraph in which they are de f ned (e.g., Code Sec. 368(a)(1)(A) de f nes a Type A reorganization). ¶17,005 General Requirements In order to receive nonrecognition treatment, the transaction(s) must have been completed pursuant to a plan of reorganization. No gain or loss will be recognized if stock or securities in a corporation that is a party to the reorganization are exchanged solely for stock or securities of the same corporation or of another corporation that is a party to the reorganization. If “boot” is received, a realized gain will be recognized to the extent of the boot received. ¶17,009 Type A Reorganizations This type of reorganization involves the acquisition of assets and includes statutory mergers and consolidations. A merger occurs when one corporation absorbs another; a consolidation occurs when two or more corporations combine in a new corporation, the former ones dissolving. This type of reorganization is the most F exible in that boot can constitute up to 50 percent of the consideration that is used to make the acquisition. A major disadvantage is that all liabilities of the acquired corporation (including contingent and unascertained liabilities) must be assumed by the acquiring corporation. ¶17,015 Receipt of Boot If a shareholder or security holder receives cash or other property (i.e., boot) in addition to the stock or securities that are permitted to be received without the recognition of gain, then a realized gain must be recognized to the extent of the lesser of (1) the realized gain or (2) the fair market value of the boot received. The distributee’s basis for boot property is the property’s fair market value. ¶17,025 Character of Recognized Gain After the amount of recognized gain is computed, its character must be determined. If an exchange has the effect of a dividend, then a shareholder’s recognized gain must be treated as a dividend to the extent of the shareholder’s ratable share of earnings and pro f ts. Any additional recognized gain in excess of the amount to be treated as a dividend will be treated as a capital gain. ¶17,053 Type B Reorganizations
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Ch17IM - 301 Chapter 17 Corporate Reorganizations SUMMARY...

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