Reference no: EM132176462

Problems

Assumptions: T has 100 shares of voting common stock outstanding which are owned 50 shares by A (basis $200), 30 shares by B (basis $400), and 20 shares by C (basis $150). T owns the following assets:

T owes $200 (in the form of 20-year bonds held by L with an adjusted basis of $190) and has E&P of $200. Assume that each T share is worth $10 and the property exchanged therefore is worth $10. Unless otherwise indicated, (1) each transaction has a proper business purpose, (2) there is continuity of T's "business enterprise," (3) the transaction is pursuant to a "plan of reorganization," and (4) the face amount of debt is its FMV. P is a publicly held corporation whose stock is traded on the NYSE. What are the tax consequences to A, B, C, L, T, and P from the following transactions?

3. On January 2 of the current year, P acquires all of C's T stock for cash. On July 1 of the current year, P acquires all of B's T stock solely for P voting stock. On December 1 of the current year, P acquires all of A's T stock solely for P voting stock. [Note: In reality, these three transactions occurring within 11 months would be difficult to separate under Regs. §1.368.2(c).] (The problem presented you a situation, then listed four alternatives: a, b, c, and d.)
What if, alternatively:

a. Each transaction is a separate "acquisition."
Part a, this alternative is less likely to happen, because of Regs. section 1.368-2(c). If they are separate (assuming), however, would B and C recognize their loss or gain? Why? How about A (ref. to section 354)? And how about P? Note that P did not have to acquire control in the swap with A, for P can have a Type B reorganization.

b. Each transaction is part of a single overall "acquisition."
Part b, this is just a replay of (2) on the top of page 65. On January 2 of the current year, P acquires all of the T common stock from A, B, and C for $200 in cash and P voting stock with FMV of $800, the consideration being allocated ratably among A, B, and C in proportion to their T stockholdings. Alternative: The exchange was conducted as a (share exchange" pursuant to an agreement of reorganization between T and P. C dissented and P supplied the cash to buy C's shares.

The problem is about the Type B reorganization. You need to write a paragraph to answer the question whether all shareholders or some of the shareholders recognize their gain or loss. Which shareholder could make a section 338 election.

c. The first transaction is a separate "acquisition," but the last two are part of a single overall "acquisition."
Part c, this alternative is a continuation of the Type B reorganization. Again, you need to write a paragraph or two, and answer the question which shareholders recognize gain or loss. Why?

d. The first two transactions are part of a single overall "acquisition," but the last is a separate "acquisition.

Part d, this alternative has the same result as alternative (a) above for B, C, and A. Why? What is P's cost basis and what is A's basis?)

Attachment:- Problems.rar