Question

1-list the key statutory requirements that must be met before a corporate formation is tax deferred under 353.

2-what is a substituted basis as it relates to stock received in exchange for property in a 351 transaction? what is the purpose of attaching a substituted basis to stock recieved in a 351 transaction? 

 3-why might a corporation prefer to characterize an instrument as debt rather than equity for tax purposes? are the holders of the instrument indifferent as to its characterization for tx purposes? 

 4-why does the acquiring corporation usually prefer to buy the target corporations assets directly in an acquisition? 

5-what are the key differences in the tax law requirements that apply to forward versus reverse triangular mergers? 

6-what are the key differences in the tax law requirements that apply to forward versus reverse triangular mergers? 

7-in a stock acquisition, why is there a difference between the tax basis of assets held by an acquired corporation and the tax basis of the shares held by a corporate acquirer? why is this difference important? 

8-what is the presumption behind the continuity of ownership interest (COI) requirement in a tax deferred acquisition? how do the target shareholders determine if COI is met in a Type A reorganization? 

9-compare how a shareholder computers her tax basis in stock received from the acquiring corporation in a straight type A merger versus a type B merger. 

10-Explain whether all shareholders receive the same tax treatment in a complete liquidation of a corporation. 

11-under what circumstances does a corporate shareholder receive tax deferral in a complete liquidation

Answer 1

1-list the key statutory requirements that must be met before a corporate formation is tax deferred under 353.

1. Tax deferral is applicable only when a property is transferred to a corporation.
2. Person who transfers a property must return stock in return from the corporation
3. Person who transfers a property must control the corporation collectively after the transaction.

2-what is a substituted basis as it relates to stock received in exchange for property in a 351 transaction? What is the purpose of attaching a substituted basis to stock received in a 351 transaction?

under the substituted basis rule, stock that is received under 351 is equal to the tax basis of the property transferred to the corporation.

Formula will be,

(cash contributed+ Tax basis of any other property contributed –Liabilities that have been assumed by the corporation on property contributed)/substituted tax basis of stock received.

The purpose of attaching substituting basis to stock received is to preserve the loss or gain deferred in the transfer. In a taxable transaction, if the stock that have received under fair market value is sold by the shareholder then The loss or gain will be equal to the loss or gain deferred

1. why might a corporation prefer to characterize an instrument as debt rather than equity for tax purposes? Are the holders of the instrument indifferent as to its characterization for tax purposes?

Payment of interest on debt will be tax deductible by corporation and the payment of equity is not deductible because it is treated as equity. so the corporations prefers to characterize the instrument as a debt rather than equity.

For tax purpose holders of instrument are not indifferent as to its characterization.

4-why does the acquiring corporation usually prefer to buy the target corporations assets directly in an acquisition?

Corporation by acquiring, usually receives a step up in tax basis of asset to fair Market value. if the asset is amortizable or depreciable, corporation because of its higher tax basis receives an increased tax deduction.