Class 5-9 Notes

Question 0

Asset acquisition

Answer 0

Company buys certain agreed upon assets

Direct purchase of assets

Question 1

Reorganization

Answer 1

Entity trying to emerge as future taxable entity

Question 2

Stock acquisition

Answer 2

1 company acquires the stock of another company

Buying out ownership interest

Question 3

3 types of stock acquisitions

Answer 3

1 stock acquisition with no liquidation
2 stock acquisition with liquidation
3 sec. 338 deemed sale election

Question 4

Stock acquisition with liquidation: when is it tax free?

Answer 4

Parent must own 80% of subsidiary for the liquidation

To be tax free

Question 5

Sec. 338 deemed sale election

Answer 5

Combination of stock acquisition and asset acquisition

Question 6

In a stock acquisition, what is the acquirers basis in the target stock

Answer 6

Basis in target stock = acquisition cost

Question 7

When are target corporations ripe for acquisitions?

Answer 7

When they are struggling financially

Question 8

When is the premium paid for a target corporation lost

Answer 8

When the acquirer owns less than 100% of the target corporation

Question 9

Section 338: exchanging stock for stock and partial liquidation, when is it advantageous?

Answer 9

Advantageous when NOL, because it offsets gain coming in

Question 10

In the year of acquisition, what is the goal of section 338?

Answer 10

Create tax favorable environment to save employees jobs,

So they can keep paying taxes

Question 11

In section 338 what happens to a target company’s tax elections?

Answer 11

They go away

Question 12

If the majority of an acquisition uses cash and debt…

Answer 12

It is usually taxable for the target corporation

Question 13

Stock for stock transactions, how are they treated tax wise?

Answer 13

Qualify as non taxable event at shareholder level until stock is sold

Question 14

What does goodwill get tested for?

Answer 14

Impairment

Question 15

Transferor

Transferee

Answer 15

Transferor = target corporation

Transferee = acquiring corporation

Question 16

Which bankruptcy proceeding involves a surviving entity?

Answer 16

Ch. 11 bankruptcy

Question 17

Merger vs. consolidation

Answer 17

In a merger 1 company liquidates

In a consolidation both companies liquidate and a 3rd company emerges

Question 18

What is important to track in mergers and acquisitions? 3 things

Answer 18

1 adjusted basis in assets
2 debt forgiven
3 impact on shareholders equity

Question 19

Consideration

Answer 19

Anything of value

Ex. Cash, property, future promise, foregoing a right of privilege

Question 20

What is a stock for stock acquisition like compared to individual taxation?

Answer 20

Like a like-kind exchange but at the corporate level

Question 21

In a stock for stock acquisition a company can…

Answer 21

Continue and not be liquidated

Question 22

Bankruptcy

Answer 22

Court approved plan

Question 23

3 types of court approved reorganizations

Answer 23

1 split off
2 spin off
3 split up

Question 24

Split off

Answer 24

Parent transfers assets to controlled subsidiary in exchange For subsidiary's stock The parent converts the subsidiary's stock to parent stock And distributes it to shareholders

Question 25

Spin off

Answer 25

After transfer of asset, give subsidiary's stock to shareholders

Question 26

Split up

Answer 26

After transfer of asset, give 2 or more subsidiary stocks to shareholders

Question 27

Divisive G Reorganization

Answer 27

Transferor corporation may continue in business or be liquidated Based on what court decides

Question 28

IRC and bankruptcy court have requirements to...

Answer 28

Avoid taxation

Question 29

In chapter 7 the government is trying to create an environment for business where...

Answer 29

They don't have to fear tax transactions during mergers and | Acquisitions

Question 30

Attribution, example

Answer 30

Carries over Ex. Wife participates in what husband does

Question 31

When is there no change in basis

Answer 31

No change in basis when there is nontaxable transfer of assets

Question 32

Taxable business combination

Answer 32

Acquirer spends less cash by using debt

Question 33

What is the point of reorganization under bankruptcy?

Answer 33

Give a troubled business a chance to be viable

Question 34

When can bankruptcy be declared?

Answer 34

When insolvent

Question 35

Insolvent

Answer 35

Debt exceeds assets and cashflow

Question 36

How often is basis in partnership and S-corporation adjusted?

Answer 36

Adjusted on annual basis

Question 37

Liquidating

Answer 37

Corporation is distributing assets other than retained earnings

Question 38

Consolidated

Answer 38

Multiple corporations filing 1 return

Question 39

Capital ex.

Answer 39

Land and building

Question 40

Selling inventory to a 3rd party

Answer 40

Completes transaction

Question 41

Inventory sale is deferred when...

Answer 41

Sold to subsidiary in affiliated group

Question 42

Tax advantages from 80% ownership interest

Answer 42

100% tax advantages

Question 43

Company that acts like apparent provides what to a subsidiary?

Answer 43

Management services

Question 44

When subsidiary depreciates inventory...

Answer 44

It triggers recognizing gain or loss

Question 45

What percentage of government revenue comes from corporate income tax?

Answer 45

10% government revenue

Question 46

What is the underlying concept in the tax code and the key to everything?

Answer 46

Basis

Question 47

What is the basis for salary and wages and dividends?

Answer 47

$0

Question 48

In an individuals life, what basis is disallowed?

Answer 48

training or college degree to get a job

Question 49

What is the basis of operational income?

Answer 49

$0

Question 50

Company assets that produce operation income have...

Answer 50

Basis

Question 51

What is essential for an acquisition plan to be executed?

Answer 51

Must be in writing and all parties must agree

Question 52

NOL comes into existence when...

Answer 52

Deductions exceed gross income

Question 53

When is NOL most advantageous?

Answer 53

In onetime non recurring loss

Question 54

Tax deferral gives the tax payer what?

Answer 54

Time to plan taxes well

Question 55

What makes an acquisition make sense? 2 things

Answer 55

1 courts look for acquisition that allows target corp to continue to Operate 2 licenses and contracts that continue because corp continues To operate