C12-Chp-07-1C-Class Plan-Reorganizations

C12-Chp-07-1C-Class Plan-Reorganizations - 1...

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1. Acquire-Problem 631924befea193225b05cfa5c759e58dea1ed11b.xls Page 1 of 7 Dan owns all of the stock of Dan Corporation (DCorp) Dan Corporation ("DCorp" ) Book Value FMV Current Assets 1,600,000 1,600,000 Fixed Assets 1,400,000 8,400,000 Total Assets 3,000,000 10,000,000 Debt 0 Common Stock – Dan’s investment 1,900,000 Retained Earnings 1,100,000 Owner Equity 3,000,000 10,000,000 FMV of Dan's stock in DCorp 10,000,000 Dan’s total basis in all outstanding DCorp Stock: $1,900,000. Big Corporation is “Big” and Dan Corporation is “DCorp.” Big issues its stock worth $10,000,000 to Dan for all DCorp stock. Type B reorganization under section 368(a)(1)(C). (Stock for Stock) Txt H-W Code First think about the general rule. You own Duke Energy stock with basis of $6,000,000 and FMV of $10,000,000. You trade your Stock for Dan's stock? Is this a tax-free exchange? 1001 What is the reason for allowing Big to Acquire Dcorp in a tax free exchange? 7-2 What are some Judicial Doctrines that place limits on tax-free reorgs? 7-24+ What is the general principle regarding recognition of gain or loss in a reorg? 7-5 How does substituted basis or carryover basis apply in reorgs? 7-8 Now a Type B Reorganization- stock for stock. Big issues its stock worth $10,000,000 to Dan for Dan's DCorp stock. 7-10 1 Gain Dan recognizes on exchange DCorp stock for Big stock? 14 354 a 1 2 What is Dan’s basis in Big stock received for his DCorp stock? 15 358 a 1 3 Big's recognized gain on exchange of its stock for DCorp stock? 16 1032 a 4 What is Big’s basis in the DCorp stock? See Rev. Proc. 81-70 (underlined part) on web after homework file. 17 362 b 5 DCorp's recognized gain on Dan's exchange of DCorp stock for Big stock? After exchange of stock, Big owns all of DCorp. Stock. Dcorp can be operated as a subsidiary. Assume a liquidation. 6 Big liquidates DCorp and receives all of DCorp’s assets in a liquidation. Dcorp's recognized gain on its distribution of all of its assets to Big? 19 337 a 7 After exchange of Big stock for DCorp stock, Big owns all stock of DCorp. Big liquidates DCorp and receives all of DCorp’s assets in a liquidation 332 a 8 Big liquidates DCorp and receives all of DCorp’s assets in a liquidation. 21 334 b 1 Type C Reorganization. Stock for Assets. 7-13 Big issues stock worth $10,000,000 to DCorp for all of DCorp's assets. Dan will liquidate Dan Corporation as part of the reorganization plan. [Dan will distribute the Big Corporation stock to its Dan’s shareholders.] This transaction qualifies as a type C reorganization under section 368. 1 22 361 a 2 23 1032 a 3 Big’s total basis for all assets received from DCorp? 24 362 b 4 DCorp’s basis for the Big stock received in exchange for Dcorp's assets? 25 358 a 1 5 DCorp’s gain on distribution of Big stock to DCorp’s shareholder? 26 361 c 6 Dan’s income or gain on receipt of liquidating distribution of Big stock? 27 354 a 7 What is Dan’s basis in the Big stock received from DCorp? 28
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C12-Chp-07-1C-Class Plan-Reorganizations - 1...

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