Taxation of Business Entities: Chapter 7 Study Questions

May 26th, 2016
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Chapter 7: Corporate Acquisitions and Reorganizations

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TAXATION OF BUSINESS ENTITIES, CHAPTER 7 QUIZANSWERS ARE HIGHLIGHTEDHow does the IRS interpret the continuity of business enterprise requirement for a Type Areorganization?A.Under the IRS interpretation, the merger and consolidation rules allow the target corporation to continue in existence afterthe merger or consolidation as long as more than 80% of the business was acquired.B.Under the IRS interpretation, the merger and consolidation rules do not permit the target corporation to continue inexistence after the merger or consolidation.Therefore, the target corporation cannot retain the remainder of its assets notacquired by the acquiring corporation and continue to conduct a business.C.The continuity of business enterprise requirements are not requirements that need to be considered for a Type Areorganization.D.The continuity of business enterprise requirements can vary depending upon how much of the target corporationis transferred, therefore the IRS interprets each on a case-by-case basis. The IRS has a three-year grace period toreview the date of the merger or acquisition. Their ruling is based on facts and circumstances.2. Compare the tax consequences of a taxable asset acquisition and an asset-for-stock reorganization, based on thefollowing factors:a.Consideration used to effect the transaction.b. Recognition of gain or loss by the target corporation on the asset transfer.c.Basis of property to the acquiring corporation.d. Recognition of gain

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