Assume that nonqualified prefererred stock is treated as boot. Is it still counted toward the control...

Assume that nonqualified prefererred stock is treated as boot. Is it still counted toward the control requirement? Why is this an issue?

Expert Solution

An exchange of property qualifies under
Section 351(a) only if the transferor receives the
transferee’s common stock or its preferred stock that is not “nonqualified preferred stock.” Although
nonqualified preferred stock should count favorably to
determine the “control immediately after” requirement,
the receipt of nonqualified preferred stock is treated as boot. Nonqualified preferred stock is preferred stock having any of the following four characteristics:
(1) The holder has the right to put the stock to
the issuer or a related party within 20 years
of the issue date,
(2) The stock is subject to a mandatory
redemption by the issuer or a related party
within 20 years of the issue date,
(3) The issuer or a related party has the right to
call the stock and, as of the issue date, it is
more likely than not, that the right will be
exercised within 20 years of the issue date, or
(4) The dividend rate varies in whole or in part
(directly or indirectly) by reference to interest
rates, commodity prices, or other similar
indices, regardless of whether such varying
rate is provided as an express term of the
stock (e.g., adjustable rate stock) or as a
practical result of other aspects of the stock
(e.g., auction rate stock)

ekkarill92 answered 2 years ago

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