Reference no: EM132184923
In each of the following transactions, what are the tax consequences to each of the parties?
Under the former Bausch & Lomb analysis, P appears to get 20 percent of the T assets for its old T stock and 80 percent for P voting stock. Since the boot relaxation rule allows 20 percent boot and there is no debt assumer here, would this transaction be a good Type C reorganization? Refer to § 368(a)(2)(B)(i). What is the tax consequence to A? Refer to § 354. How many is A's the carryover bases in the P stock? Refer to § 358(a)? What is the tax consequence to T and P? You need some analysis for the tax consequences to T and P. The question arose whether the Bausch & Lomb approach would be carried through by treating this in part as a liquidation and in part as a reorganization as to T and P. If so, T transfers 80 percent of its assets solely for P stock and recognizes no gain or loss under § 361(a). T transfers 20 percent of its assets to P as its shareholder. § 361(c)(4) and § 336(c) make clear that as to Disposition No.2 the reorganization rules control; if P is deemed to receive 20 percent would not be qualified property and T would recognize $60 gain. Refer to B&E 12.42. But today, the 20 percent old-and-cold T stock no longer results in taxability to T.
How much income would P also recognize on its T stock under either § 356 or § 331 while holding 20 percent of the asset at $200 cost basis and the other 80 percent at a $560 carryover basis? Which Rev. Rul. would give P a pure § 362(b) carryover basis here despite P's recognition of gain? Consider treating the 20 percent T stock held by P as boot. How about under Regs. § 1.368-2(d)(4)(ii), Ex. (1)?
This transaction is not exactly a creeping acquisition, unless the probable subsequent purchase of B's S stock (probably from B's heirs) is viewed as the second step. Would it be a good reorganization? Why? Note that B's preferred stock most likely would be § 351(g) stock. What is the tax consequence to B on its receipt in the § 351 exchange with S? Refer to B&E 3.05.
Under the Bausch & Lomb approach (until its abandonment in 2000 by Regs. § 1.368-2(d)(4)), the circular flow of P stock back to P was disregarded and treated as a § 332 liquidation and not a reorganization. P obtains 80 percent of the T assets for T stock without recognition under § 332 and acquires the other 20 percent of the assets for P stock without recognition under § 1032. P takes a $560 or $700 carryover basis from T for 80 percent or 100 percent of the assets under § 334(b)(1). Would T recognize a gain or loss? Why? You need to analyze several possibilities. Refer to § 334(b)(1) and § 361(a). Also consider a Type C reorganization here. How about P and A? What are the tax consequences for P and A? Why? Refer to 334(a) and 331(a). Also consider a tandem Type C reorganization together with the T-P § 332 liquidation.
This transaction literally passes the active conduct test of § 355(b)(1)(A). Why?
However, if A and B had directly swapped stock, they would have recognized gain and loss. Refer to Regs. § 1.355-4. Is this the case in this transaction? Why? What would be your advice to your client in this case?