C12-Chp-07-1A-Acq-Reorgs-Taxable--Tax-free-2012

C12-Chp-07-1A-Acq-Reorgs-Taxable--Tax-free-2012 - Chapter...

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1 Chapter 7A. Corporate Reorganizations C9-Chp-07-1A-Acq-Reorgs-Taxable--Tax-free-2009 Edited February 14, 2009 Howard Godfrey, Ph.D., CPA Professor of Accounting Copyright Howard Godfrey, 2009.
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Note to students This material covered in this chapter often is covered in an entire course on reorganizations. This is not our mission. We will attempt to cut through to the essentials.
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In order to understand the general rules for taxable acquisitions, it is important to understand: 1. Code sections dealing with gains and losses on exchanges of property. 2. Code sections dealing with distributions of cash and other property by corporations to their shareholders. (Chapter 5). 3. Code sections covering corporate liquidations (Chapter 6). Please use following file along with these slides. C9-Chp-07-5A-Reorganization-JCorp-Big Corp
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Cash $500 Cash $100 Other Assets 400 Other Assets 300 Total $900 Total $400 Debt $400 Debt $100 Com. Stock 200 Com. Stock 100 Ret. Earn. 300 Ret. Earn. 200 Total $900 Total $400 Ways to Acquire A Corporation Big Corporation Local Corporation Big Stockholders Local Stockholders
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Need to understand: 1. Tax rules for the two taxable types of acquisition of JCorp or its assets by Big 2. Tax rules for the two tax-deferred types of acquisition of JCorp or its assets by Big Corporation – See slides 59 & 63+ later. Type B and C reorgs. See Second PowerPoint file for Ch. 7: 3. Tax rules for divisive reorgs. See Local Corp and New Corp. Slides 7+ 4. General principles for reorganizations: Continuity, Step Transactions, etc.
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Preview of things to come 1. In a type B reorganization, as defined by the Internal Revenue Code, the I. Stock of the target corporation is acquired solely for the voting stock of either the acquiring corporation or its parent. II. Acquiring corporation must have control of the target corporation immediately after the acquisition. a. I only. b. II only. c. Both I and II d. Neither I nor II (CPAN94)
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Please study the slides on the following pages. They provide the basis for illustrating many of the tax rules of this chapter.
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Book Value FMV Cash $600,000 $600,000 Buildings 400,000 1,400,000 Total Assets $1,000,000 $2,000,000 Debt $0 Common Stock 100,000 Ret. Earnings 900,000 Owner Equity $1,000,000 $2,000,000 JCorp - Slide 1A Jan owns 100% of the stock of JCorp. Jan's stock. Basis: $100,000. Jan's stock. FMV: $2,000,000.
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To: For: 1 Cash - $2,000 JCorp JCorp Assets 2 Cash - $2,000 Jan Jan's Stock 3 Big Stock worth $2,000 JCorp JCorp Assets 4 Big Stock worth $2,000 Jan Jan's Stock Big may operate JCorp as a sub or i Big may choose to liquidate Jcorp. 1 & 3. Jan may liquidate Jcorp later JCorp - Slide 1B Acquisition Alternatives: ($000). Big Corp. acquires JCorp or its Assets.
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This note was uploaded on 03/09/2012 for the course ACCT 6120 taught by Professor Godfrey,h during the Spring '08 term at UNC Charlotte.

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C12-Chp-07-1A-Acq-Reorgs-Taxable--Tax-free-2012 - Chapter...

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