Acquisitive Reorgs: Statutory Merger, Stock for Stock, and Stock for Asset

Reorganizations
Student’s Name
Institutional Affiliation
Course
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Date
Reorganizations
In this evaluation, the concept of the reorganization of corporations in terms of Type A, B, and C will be explored, and solutions to questions 1-12 are presented below.
1
There are no tax consequences of this merger to Target Corporation since the boot (cash) is distributed to its shareholders. The table below shows the recognized gains for Target’s four shareholders.

Alice

Ben

Cathy

David


$

$

$

$

Acquiring Stock

750,000

750,000

750,000

750,000

Cash (Boot)

250,000

250,000

250,000

250,000

Adjusted Basis in Target Stock

390,000

870,000

1,190,000

660,000

Realized Gain/loss

610,000

130,000

- 190,000

340,000

Recognized Gain

250,000

130,000

-

250,000

The recognized gain for Alice, Ben, and David is $250,000, $130,000, and $250,000, respectively, being the lesser of the boot they received of $250,000 for each of their realized gains. Cathy had a realized loss of -$190,000, so she has no recognized gain. The gains are taxed as dividends to the extent of each Target shareholder’s share of Target’s E & P, which is 25% of E & P for each shareholder given that they own the corporation equally, the remaining (if any) is treated as a long-term capital gain.
2
There are no tax consequences of this merger to Target Corporation since the boot (cash) is distributed to its shareholders. The table below shows the recognized gains for Target’s four shareholders.

Alice

Ben

Cathy

David


$

$

$

$

Acquiring Stock

350,000

350,000

350,000

350,000

Cash

650,000

650,000

650,000

650,000

Adjusted Basis in Target Stock

390,000

660,000

1,190,000

870,000

Realized Gain/loss

610,000

340,000

- 190,000

130,000

Recognized Gain

610,000

340,000

-

130,000

The recognized gain for Alice, Ben, and David is $610,000, $340,000, and $130,000, respectively, being the lesser of the boot they received of $650,000 for each of their realized gains. Cathy had a realized loss of -$190,000, so she has no recognized gain. The gains are taxed as dividends to the extent of each Target shareholder’s share of Target’s E & P, which is 25% of E & P for each shareholder given that they own the corporation equally, the remaining (if any) is treated as a long-term capital gain.
3
Target’s stock that is acquired into Acquiring is valued at the value of Target’s assets, totaling $4 million and which consist of: Cash $200,000; Inventory $2,000,000 (AB $1,400,000); Land $1,800,000 (AB $2,100,000). If Target is merged into Acquiring pursuant to a plan whereby each shareholder of Target, other than David, is to receive the stock of Acquiring Corporation and...