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CHAPTER 7 CORPORATIONS: REORGANIZATIONS LECTURE NOTES SUMMARY OF CHANGES IN THE CHAPTER The following are notable changes in the chapter from the 2008 Edition. For major content changes, see the Preface to the Instructor’s Edition of the text. News Boxes Replaced Tax in the News titled Low Capital Gains Rates Makes Taxable Acquisitions Appealing with a new article titled Mergers and Corporate Social Responsibility . Revised Global Tax Issues . Replaced Tax in the News titled The Financial Eye for the Strategic Buyer with a new article titled Merger Mania Is a Boardroom Illness . Ethical and Equitable Considerations o Added new Ethical and Equitable Considerations titled Cool Days and Night Fevers . o Replaced Ethical and Equitable Considerations Merger with Sour Notes with a new scenario titled Giving Voice to Ethical Values Replaced Exhibit 7-3, States with the Highest Business Termination Rates, 2003 with a new table titled Highest Business Terminations by State Population, 2006 Text Changes Updated introductory paragraphs with current statistics, merger & acquisition Updated tables listing the largest M&A since 1998 and the largest bankruptcies filed since 1987. Extended coverage of the present value analysis in acquiring a target company with an NOL. Added Example 36 illustrating the NPV computation of the value of an NOL. 7-1
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7-2 2009 Annual Edition/Instructor’s Guide with Lecture Notes Added Example 43 to Tax Planning Considerations illustrating combining a distribution with a “Type B” reorganization. Replaced In-Class Exercise at the end of this IG Chapter (page 7-19) with new problem. INITIAL OBSERVATIONS 1. Tax-free reorganizations are a form of nontaxable exchanges. Treatment parallels almost exactly § 1031 like-kind exchange provisions and § 351 corporate formations provisions. a. Security holders (stockholders and bondholders) of corporations involved in a tax-free reorganization recognize no gain or loss when they exchange their ownership and securities for stock and bonds in the other corporation. A security holder’s basis in the new stock or bonds received will be a carryover basis. b. If a security holder receives property other than stock or bonds, the other property is treated as boot. The amount of gain recognized is the lesser of realized gain or boot received . Losses are not recognized regardless of the boot received. Basis in the stock or bonds received is equal to their fair market value less the realized gain postponed or plus the realized loss postponed. c. Concept Summary 7-1 presents a four-column approach to computing realized gain (loss), recognized gain (loss), postponed gain (loss), and adjusted basis in the new stock or bonds received in a corporate reorganization. This four-column approach is also useful in computing the gains and new basis for § 1031 like-kind exchanges, §
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This note was uploaded on 04/01/2011 for the course ACCT 730 taught by Professor Tom during the Spring '11 term at Davenport.

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