ExpertHard1 markMultiple Choice
CPA · Question 64 · Area 4: Entity Tax Planning
A taxpayer is considering a Type A Reorganization (Statutory Merger). Target shareholders will receive 60% stock of Acquirer and 40% cash. Will this qualify as a tax-free reorganization?
A taxpayer is considering a Type A Reorganization (Statutory Merger). Target shareholders will receive 60% stock of Acquirer and 40% cash. Will this qualify as a tax-free reorganization?
Answer options:
A.
No, because cash is involved.
B.
Yes, provided Continuity of Interest is met (generally 40%+ stock).
C.
No, Type A requires 100% stock.
D.
Yes, but only if it is a Type B reorganization.
How to approach this question
1. Identify Reorg Type: Type A (Merger).<br/>2. Requirement: Continuity of Interest (COI).<br/>3. Threshold: IRS generally looks for at least 40% of consideration to be stock.<br/>4. Fact: 60% stock.<br/>5. Result: Qualifies. (Cash portion is taxable boot, but reorg status holds).
Full Answer
B.Yes, provided Continuity of Interest is met (generally 40%+ stock).✓ Correct
Type A reorganizations are flexible regarding consideration. As long as the Continuity of Interest doctrine is satisfied (generally 40% stock is safe), the transaction qualifies. The cash received is taxed as boot.
Common mistakes
Confusing Type A with Type B (which requires solely voting stock).
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