Ch. 8 - Corporate Formation, Reorganization, and Liquidation (Taxation)

What is realized gain or loss?

The economic gain or loss created by a transaction.

What is recognized gain or loss?

The gain or loss reported for tax purposes now.

What is deferred gain or loss?

Realized gain or loss postponed until a later taxable event.

What is the formula for realized gain or loss?

Amount realized - adjusted tax basis.

What are the 3 requirements for §351?

Property + stock + control immediately after the exchange.

What is control under §351?

At least 80% voting stock and 80% of each nonvoting class.

Does cash count as property under §351?

Yes.

Do intangible assets count as property under §351?

Yes, such as patents, trademarks, and customer lists.

Do services count as property under §351?

No. Stock received for services generally creates compensation income.

What must a transferor receive for §351 deferral?

Qualifying stock of the corporation.

Does corporate debt qualify as stock under §351?

No.

What is boot?

Money or nonqualifying property received in addition to stock.

How much gain is recognized when boot is received?

The lesser of realized gain or boot received.

Can a loss be recognized because boot is received under §351?

No. A §351 loss is generally not recognized.

What is the formula for §351 shareholder stock basis?

Property basis + gain recognized - boot - liabilities assumed.

Are liabilities assumed generally treated as boot?

No, but they generally reduce the shareholder's stock basis.

What happens if liabilities assumed exceed the property's basis?

The excess can create recognized gain.

What basis does a corporation generally take in property received under §351?

Carryover basis from the transferor, adjusted for recognized gain.

What is the formula for the corporation's §351 property basis?

Transferor basis + gain recognized by transferor.

What is carryover basis?

Basis that carries from the transferred property to the recipient.

What is substituted basis?

New property's basis derived from the property surrendered.

Why are built-in loss rules needed?

To prevent the same built-in loss from being duplicated.

What is the §1244 ordinary-loss limit for a single taxpayer?

Up to $50,000 of qualifying loss.

What is the §1244 ordinary-loss limit for married filing jointly?

Up to $100,000 of qualifying loss.

What basis does a buyer generally receive in a taxable asset acquisition?

A new cost/FMV basis in the acquired assets.

Does a taxable stock acquisition change the target corporation's inside asset bases?

Generally no.

What 3 judicial doctrines support tax-deferred reorganizations?

Continuity of Interest, Continuity of Business Enterprise, and Business Purpose.

What is Continuity of Interest (COI)?

Target owners retain a meaningful equity interest in the acquiring corporation.

What is Continuity of Business Enterprise (COBE)?

The acquirer continues the target's business or uses significant target business assets.

What is the Business Purpose requirement?

The reorganization must have a significant business purpose beyond tax avoidance.

What is a Type A reorganization?

A statutory merger or consolidation.

Can shareholders receive boot in a Type A reorganization?

Yes, but boot can cause partial gain recognition.

What is a Type B reorganization?

A stock-for-stock acquisition using solely voting stock.

What control is generally required for a Type B reorganization?

At least 80% control of the target corporation.

What is a complete corporate liquidation?

The corporation distributes its net assets for its stock and ends the business.

What happens in an 80% parent-subsidiary liquidation?

The parent generally recognizes no gain/loss and takes carryover basis.