Managers buy substantial amounts if shares following the spin off
No synergy between parent and subsidiary
Conflicts within the organization
Parent does not receive any income anymore
Determine whether the following transactions are taxable. If a
transaction is not taxable, indicate what type of reorganization is
affected, if any.
Alpha Corporation owns assets valued at $400,000 and
liabilities of $100,000. Beta Corporation transfers $160,000 of
its voting stock and $40,000 in cash for 75% of Alpha’s assets
and all of its liabilities. Alpha distributes its remaining assets
and the Beta stock to its shareholders. Alpha then liquidates.
Beta Corporation owns assets valued at $1 million with
liabilities of $200,000, and Alpha holds assets valued at
$350,000 with liabilities of $150,000. Beta transfers 200,000
shares of stock and $50,000 cash, and it accepts $100,000 of
Alpha’s liabilities, in exchange for all of the Alpha assets.
Alpha Corporation obtained 200,000 shares of Beta
Corporation’s stock 10 years ago. In the current year, Alpha
exchanges 40% of its stock for 500,000 of the remaining
600,000 shares of Beta stock. After the transaction, Alpha
owns 700,000 of the 800,000 Beta shares outstanding.