Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Taxes > Final Exam > Flashcards

Final Exam Flashcards

(82 cards)

Start Studying
0
Q

I.R.C. 162(m)

A

Limits tax deductibility of executive compensation to $1MM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

I.R.C. 197

A

Provides that amortization on goodwill and other intangibles is tax deductible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

I.R.C. 1259

A

Makes constructive sales of appreciated property taxable at the time of constructive sale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

I.R.C. 355

A

Specifies various requirements in order for a spin-off to be tax-free

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

I.R.C. 302 (b) (2)

A

Relates to the tax treatment of stock redemptions. Stock redemptions are taxed as sales if they are substantially disproportionate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What strategies have companies doing business in India used to reduce their tax burden?

A

Shift income to Mauritius

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How did UPS reduce income taxes on its package insurance business?

A

Spun off the package insurance business to Bermuda, then shifted income to Bermuda

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What led Usain Bolt to avoid track meets in the U.K.?

A

U.K. taxes on his worldwide income based on his participating in track meets in the U.K.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

I.R.C. 338

A

Taxable stock of a freestanding company that is taxed like an asset sale. A rarely used structure since the Tax Reform Act of 1986

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What strategy did Chinese couples use to reduce taxes due upon sale of their homes?

A

Got divorced

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What simple strategy could the owners of Tumblr have used to save significant income taxes on the sale of Tumblr to Yahoo?

A

Accelerated closing of the sale into 2012

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What created tax benefits for Proctor & Gamble in its acquisition of Clairol from Bristol Myers?

A

338(h)(10) election and resulting step up in basis of clairol’s assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How much, in present value dollars at the time of the deal, were the tax benefits for Proctor & Gamble in the Clairol transaction?

A

About $1bn

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How much, as a percentage of deal value, were the tax benefits for Proctor and Gamble in the Clairol transaction?

A

About 20% of the deal’s value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

I.R.C. 382

A

Limits the use of a target’s tax attributes (eg NOLs) post-acquisition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What was an asserted unintended consequence of the 1993 tax deductible limit on executive compensation of $1MM?

A

Excess use of employee stock options and a resulting incentive for executives to inflate accounting earnings and ultimately commit accounting fraud

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

I.R.C. 386 (a) (1) (B)

A

Tax free stock for stock merger

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What event allowed KB Home to recognize $100MM+ in tax benefits in 2010?

A

Extension of NOL carryback period from 2 to 5 years allowed for refund of previously paid taxes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

President George W. Bush signed a change in tax policy that benefitted owners of professional sports franchises. What was that change?

A

Made certain professional sports franchise intangibles tax deductible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Why were there tax benefits in the KKR IPO? Why we’re similar tax benefits not obtained in Facebook’s IPO?

A

Tax benefits from stepping up the tax basis of KKR’s assets. Facebook was a C corporation pre-IPO, so such benefits were unavailable to Facebook

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

In week #3, double taxation was discussed at some length. In what valuation situations should you consider double taxation?

A
  1. Sale of privately held company (income shifted out of business to owner)
  2. Sale of a subsidiary involved in intercompany transactions in which income is shifted from one subsidiary to another
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

I.R.C. 754

A

Provides for a step-up in tax basis in the assets of a partnership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Approximately how much as a percentage of deal value were the tax benefits that Southwest expected to realize as a result of its acquisition of AirTran?

A

About 8-10%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the tax basis in a taxable stock sale without a 338(h)(10) election?

A

Carryover basis

i.e. when acquirer takes on target’s tax basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Is goodwill tax deductible in a carryover transaction?
No
25
What tax basis will acquirer have with a 338(h)(10) election?
Step up basis
26
What is acquired in a reverse triangular 368 "A" acquisition?
Assets
27
In a reverse triangular IRC 368 "A" acquisition, what is the requirement for a tax-free treatment with respect to the proportion of consideration that must be acquirer stock?
At least 80% acquirer stock
28
What types of acquirer stock can be used in a reverse triangular IRC 368 "A" acquisition?
Voting stock
29
Why might an acquirer be forced to do a reverse triangular 368 "A" rather than a forward triangular A?
The target has assets that cannot be sold (they do not transfer)
30
What is acquired in an IRC Section 368 "B" acquisition?
Stock
31
In IRC Section 368 "B" acquisition, what are the requirements for tax-free treatment with respect to the proportion of consideration that must be acquirer stock?
100% acquirer firm stock
32
In an IRC Section 368 "B" acquisition, what types of acquirer (Newco) stock can be used with this acquisition structure?
Must be voting stock
33
IRC 338 (h) (10)
Taxable stock sale of a subsidiary or an S corp that is taxed like an asset sale
34
IRC 386 (a)(1)(A)
Tax free stock for asset merger
35
IRC 332
Allows for tax-free liquidation of corporate subsidiaries
36
IRC 302(b)(1)
Relates to the tax treatment of stock redemptions. Stock redemptions are taxed as sales if they are not essentially equivalent to a dividend.
37
What tax planning strategy did the Rolling Stones use to reduce their tax liabilities?
Shift ownership of their music catalog to the Netherlands
38
As noted recently in the financial press, what adverse effect were some companies concerned about if and when president Obama and Congress reduce U.S. Corporate tax rates?
Firms with deferred tax assets will have lower GAAP earnings if corporate tax rates are reduced
39
What events in the 1980s led to the U.S. Corporate alternative minimum tax?
A number of firms reported large GAAP earnings, but paid relatively little income tax
40
What type of transaction did stamps.com complete to protect its net operating loss carryforwards?
NOL poison pill
41
What are three market and taxpayer actions documented in the financial press, and discussed in class, that occurred in response to the re-election of President Obama and the expectation that tax rates will increase in 2010?
i. Increase in dividend payouts prior to 1/1/2013 (e.g. Costco, Walmart) ii. Sell off of appreciated publicly traded equity positions prior to 1/1/2013 iii. Sale of companies by owners prior to increase in tax rates on 1/1/2013
42
What did the court of appeals conclude about UPS's tax planning strategy associated with its package insurance business in UPS v Commissioner?
The court of appeals reversed the tax's court decision and concluded that the transaction was part of a bona fide profit seeking business, and therefore had a valid business purpose
43
What strategy have some wealthy individuals considered in 2010 in regard to estate taxes?
Euthanasia (intentionally dying in 2010 so as to avoid estate taxes in 2011)
44
After the IRS issued the "Wells Fargo" ruling in 2008, how much more did Wells Fargo offer for Wachovia than Citigroup had previously offered?
About $13bn
45
Comparison of the sale of an S corp to the sale of a C corp: What is the max price that an Acquirer will pay to acquire the target C Corp in taxable asset sale?
Stock Price -Asset *Factor *Tc / (1-Factor*Tc)
46
When Google bought YouTube for $1.2BN, approximately how much tax deductible goodwill was created in the transaction?
$0 (no tax deductible was created in the deal)
47
In the AMC Partnership case, what type of entity was Colgate's partner (the non-Merrill Lynch partner)? Why was the type of entity of this partner relevant to the contemplated tax benefits?
The partner was an offshore financial institution that was not subject to tax on income from the partnership. This was a critical element of the transaction.
48
What type of transaction did stamps.com complete to protect its $240MM of NOLs?
NOL poison pill
49
How much, in PV AT dollars, are the tax savings associated with preserving the target's NOLs worth?
1. Purchase price * LT tax exempt rate 2. NOLs / #1 = 12 years 3. #2 * 35% 4. Find PV of annuity using discount rate and #3 or expiration years 5. PV * #3 6. 12 years * value of NOLs 7. NOLs - # 6 8. 7. * 35%
50
When Google bought YouTube for $1.2BN, approximately how much tax deductible goodwill was created in the transaction?
$0 (no tax deductible was created in the deal)
51
In the AMC Partnership case, what type of entity was Colgate's partner (the non-Merrill Lynch partner)? Why was the type of entity of this partner relevant to the contemplated tax benefits?
The partner was an offshore financial institution that was not subject to tax on income from the partnership. This was a critical element of the transaction.
52
What type of transaction did stamps.com complete to protect its $240MM of NOLs?
NOL poison pill
53
How much, in PV AT dollars, are the tax savings associated with preserving the target's NOLs worth?
1. Purchase price * LT tax exempt rate 2. #1 * corp tax rate 3. NOLs / #1 = 17 years 4. Find PV of annuity using discount rate and #3 or expiration years 5. PV * #2
54
368 A structure: calc tax paid at time of sale.
1. Determine gain (stock rec'd - taxable basis) 2. Determine boot rec'd 3. Determine gain recognized (lesser of gain realized or boot rec'd) 4. Tax liability: gain recognized * 20%
55
Under what circumstances does a 338 (h) (10) election make sense for the sub of a c corporation?
1. Asset basis = stock basis 2. Asset basis > stock basis 3. Divesting parent has NOLs 4. Stock basis > asset basis by less than tax benefit from the step up
56
When is a 338 (h) (10) election sub-optimal in the sale of a subsidiary of a c corporation?
When stock basis > asset basis by a large amount
57
What are three basic requirements necessary for the acquisition of a freestanding company to qualify as "tax-free" under IRC 368?
1. Continuity of proprietary interest 2. Continuity of business purpose 3. Valid business purpose
58
What are the requirements that must be met to make a valid 338 (h) (10) election?
1. Acquirer at least 80% of the target's stock within 12 months 2. Target must be one of the two types (subsidiary or S corp) 3. The election must be made jointly by the buyer and seller (target S/H in S corp case)
59
Futures question: terms of license cannot be sold to another party. What acquisition structure would you recommend?
Reverse triangular 368 "A". The surviving entity in the merger is Future, which is a subsidiary of Past. All of future's assets survive and become the property of Past, indirectly.
60
What is min price S/H will accept?
``` 1. Calc stock sale: Price-S/H basis - CLCF * .2 2. Calc asset sale a. P - S/H basis * .35 = corp tax B. Price - corp tax = S/H distribution C. S/H dist - S/H basis - CLCF * .2 D. S/H dist - C E. Stock sale - asset sale F. E/.8. Then / .45 G. Add f to purchase price ```
61
Forward triangular merger
368 tax free structure in which the target is merged into a subsidiary of the acquirer with the acquirer sub corp surviving as a sub of the acquirer
62
I.R.C. 351
Provides tax free treatment in corporation formation transaction
63
I.R.C. 302 b 3
Relates to the tax treatment of stock redemptions. Redemption in complete termination of shareholder interest is taxed as a sale.
64
How did worldcom/MCI reduce its state income tax liabilities?
It paid royalties out of states to the Delaware parent company for "management expertise" thereby reducing income in various states and shifting income to Delaware
65
What did court of appeals conclude about UPS's tax planning strategy associated with its package instance business in ups v commissioner?
Court reversed the tax courts decision and concluded that the transaction was part of a bona fide profit seeking business, and therefore had a valid business purpose
66
What strategy have some wealthy individuals considered in 2010 in regard to estate taxes?
Euthanasia (intentionally dying in 2020 to avoid estate taxes in 2011).
67
How much approx are the NOLs of Airtran worth to Southwest Airlines?
About $120mm to $125mm
68
What definition under the tax law was key to the tax benefits sought by the individuals in the jade trading case?
The definition of a liability
69
How did worldcom/MCI reduce its state income taxes, pre-bankruptcy
Restructured so operating subs in states paid a royalty to parent company located in Delaware, thereby shifting income out of states with positive tax rate into Delaware which has 0% tax rate
70
What liability was tribune hit with prior to its acquisition activities?
Tax liabilities from deals done by times mirror pre-tribune acquisition
71
Comparison for a corp versus c corp I ordinary income tax rate
35% (not 20%)
72
Comparison for a corp versus c corp, part c
/.8 and then /.65 Stock sale then asset sale
73
Comparison for a corp versus c corp, part d
Divide difference by .8 No 338 h 10 and W 338 h 10
74
Comparison for a corp versus c corp, part e
Use answer from part a for a corp, c corporate matches no 338 h 10
75
Step up (or down) basis equals
Cash (or stock) price
76
Optimal divestiture question
Never use 20%
77
Optimal divestiture question, part b How much ATAX cash will seller revolve without 338h10?
Cash price - S/H basis - CLCF *.35 Cash price - answer
78
Optimal divestiture question, part d How much ATAX cash will seller receive with 338h10?
Cash price - tax basis of target = answer Break out capital gain (less CLCF) and ordinary income and multiply both by 35% Subtract from cash price
79
Optimal divestiture question, part e At what price is seller indifferent between a stock sale with or without 338(h)(10)?
B-D / .65 + cash price
80
ADSP calculation
ADSP = Price + L + tax rate * (ADSP- net basis - NOL)
81
Preserve NOLs 1. How much, in PV ATAX $, are the tax savings associated with preserving the targets NOLs?
1. Price * LT tax exempt rate = amount per year 2. NOLs/ amount per year = years 3. Amount per year * corp tax rate 4. #3 * PV (using Years and discount) 5. NOLs - (amount per year * years) 6. #5 * corp tax rate 7. #6 * PV (10%, year after exp). FIRST Table!!! 8. Add #6 + #7

Taxes (15 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions