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

Reorganizations
Student’s Name
Institutional Affiliation
Course
Instructor
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 David solely is to receive $250,000 of Acquiring Corp stock and $750,000 of cash, then the remaining three shareholders, Alice, Ben, and Cathy, will receive an equal share of the remaining stock, $3 million [$4 million – (David’s $250,000 stock + $750,000 cash)]. Therefore, Alice, Ben, and Cathy will each receive $1 million of Acquiring Corp stock. The table below shows the recognized gains for Target’s four shareholders.

Alice

Ben

Cathy

David


$

$

$

$

Acquiring Stock

1,000,000

1,000,000

1,000,000

250,000

Cash

-

-

-

750,000

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

-

-

-

340,000

There are no recognized gains for Alice, Ben, and Cathy since they received no boot. David had a recognized gain of $340,000, being the lesser of the boot he received of $750,000 or his realized gain. David’s gain is taxed as a dividend to the extent of his Target shareholding share of Target’s E & P, which is 25% of E & P, given that the shareholders own the corporation equally, the remaining (if any) is treated as a long-term capital gain.
There are no tax consequences for both Acquiring and Target on the transfers to Alice, Ben, Cathy, and David because no boot is transferred, and the boot (cash) of $750,000 is distributed to David, respectively.
4
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 is to receive $100,000 of Acquiring Corp stock and $900,000 of cash and David is to receive only the stock of Acquiring Corporation, then David will receive $1 million of Acquiring stock [$4 million – (Each shareholder’s $100,000 stock + $900,000 cash)]. The table below shows the recognized gains for Target’s four shareholders.

Alice

Ben

Cathy

David


$

$

$

$

Acquiring Stock

100,000

100,000

100,000

1,000,000

Cash

900,000

900,000

900,000

-

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

610,000

130,000

-

-

There is no recognized gain for David since he received no boot. Alice and Ben had recognized gains of $610,000 and $130,000 being the lesser of the boot they each received of $900,000 or their realized gains. Cathy had a realized loss of -$190,000, so she has no recognized gain. Alice and Ben’s gains are taxed as dividends to the extent of their Target shareholding share of Target’s E & P, which is 25% of E & P for each shareholder, given that the shareholders own the corporation equally, the remaining (if any) is treated as long-term capital gains.
There are no tax consequen...