17 SG Questions

17 SG Questions - Chapter 17 Study Guide Questions Summary...

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Chapter 17 – Study Guide Questions Summary There is a "reorganization" of a corporation when there is a change in the corporation's capital structure (i.e., a change in the identity and/or rights of the corporation's owners and/or creditors ). Although gain or loss usually has to be recognized when property is sold or exchanged, the Code makes an exception for certain types of corporate reorganizations. "A" reorganizations (statutory mergers or consolidations), "B" reorganizations (stock-for-stock reorganizations), "C" reorganizations (stock-for-assets reorganizations), "D" reorganizations, "E" reorganizations (recapitalizations), "F" reorganizations, and "G" reorganizations qualify for special tax treatment. To determine whether a reorganization qualifies for non-recognition of gain or loss treatment, it is important to understand when one corporation is in "control" of another. As a general rule, one corporation "controls" another corporation if it owns stock of that corporation that possesses at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of the corporation's stock. A special rule applies to "D" reorganizations. A "party to a reorganization" includes a corporation resulting from the reorganization. It also includes both corporations in a transaction qualifying as a reorganization, if one corporation acquires the stock or properties of another corporation. For an exchange or distribution made as part of a reorganization to qualify for non-recognition treatment, it must be made pursuant to a plan of reorganization. For a reorganization to be tax-free, there must be a business purpose for the reorganization. For a transaction to qualify as a tax-exempt reorganization (other than an "E" or "F" reorganization"), there must be a continuity of the business enterprise through the issuing corporation under the modified corporate form . There is a "continuity of business enterprise" if the issuing corporation either continues the target corporation's historic business or uses a significant portion of the target corporation's business assets in a business. Reorganizations other than "E" or "F" reorganizations must satisfy a continuity of interest requirement. Continuity of interest requires that in substance a substantial part of the value of the proprietary interests in the target corporation be preserved in the reorganization. "A" reorganization . A transaction can qualify as an "A" reorganization if (1) the transaction is effected pursuant to the laws of the United States or a state or the District of Columbia; (2) as a result of the operation of such laws, the following events occur simultaneously at the effective time of the transaction: all of the assets (other than those distributed in the transaction) and liabilities (except to the extent satisfied or discharged in the transaction) of each member of one or more combining units
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This note was uploaded on 01/14/2012 for the course ACCT 101 taught by Professor Smith during the Spring '11 term at UT Arlington.

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17 SG Questions - Chapter 17 Study Guide Questions Summary...

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