Exam 20: Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Briefly describe the Federal judicial doctrines that may apply to tax-free corporate reorganizations.

Dipper Corporation is acquiring Bulbul Corporation by exchanging 220,000 shares of Dipper stock and $80,000 cash for all of Bulbul's assets (valued at $500,000), liabilities ($200,000), and accumulated earnings and profits ($120,000). Betty purchased 40% of Bulbul five years ago for $60,000, and Keith purchased the remaining 60% for $90,000. What is the amount of the gain or loss (if any) that Betty and Keith recognize, assuming that the exchange qualifies as a § 368 reorganization? What is the basis in their new Dipper stock?

Compare the sale of a corporation's assets with a sale of its stock from the perspective of the seller.

The tax treatment of reorganizations almost parallels the Federal income tax treatment for like-kind exchanges.

For corporate restructurings, meeting the § 368 reorganization "Type" requirements is all that needs to be considered when planning the structure of the transaction.

In corporate reorganizations, if an acquiring corporation is using property other than stock as consideration, it may recognize gains but not losses on the transaction.

During the current year, Ecru Corporation is liquidated and distributes its only asset, land, to Kena, the sole shareholder. On the date of distribution, the land has a basis of $250,000, a fair market value of $650,000, and is subject to a liability of $500,000. Kena, who takes the land subject to the liability, has a basis of $120,000 in the Ecru stock. With respect to the distribution of the land, which of the following statements is correct?