Income Tax Mod 4
Jessica Schmitt
Income Tax 2 7-36:
Lee Xanders
Route 1, Box 2440
Mason, OH 45040
Dear Ms. Xanders
As you are interested in the reorganization of Drab and Olive, please find the following information regarding three different types of consolidation, or reorganization; a “Type A” consolidation, a “Type C” or an acquisitive “Type D” reorganization. The advantages of a “Type A” consolidation include that consideration need not include voting stock. Up to 60% of consideration can be cash and property without tax consequences for the stock received. “Type C” advantages include less complexity that a “Type A” consolidation because there are no state, federal or foreign laws to follow, the acquiring company assumes only the target companies liabilities that it chooses, and cash or property consideration for 20% or less of fair market value of the property transferred is acceptable. And finally an acquisitive “Type D” reorganization allows a smaller target company to retain its existence, which seems to be the best option for you since name recognition is an important factor in the gardening market.
Thank you,
Jessica Schmitt
7-45:
In order for reorganizations to qualify to tax-free treatment, statutory regulations, as well as several judicial doctrines have become basic requirements for tax-free treatment. Looking at these judicial doctrines, one tax problem that can be identified with the proposed transaction would be the step transaction doctrine. It presents problems for an acquiring corporation who does not want all of the target’s assets, like Midori not wanting the spice products of Verdigris. If the transferring corporation tries to dispose of unwanted assets before reorganization, this doctrine could perhaps ruin the tax favor of the reorganization because the receiving corporation wouldn’t have obtained substantially all of the assets as required under Type C.
Chapter 8, research problem #4:
Mary Ellen Rogers
1101 Office Strip Lane, Suite 3
Hudson, OH
Income Tax 2 7-36:
Lee Xanders
Route 1, Box 2440
Mason, OH 45040
Dear Ms. Xanders
As you are interested in the reorganization of Drab and Olive, please find the following information regarding three different types of consolidation, or reorganization; a “Type A” consolidation, a “Type C” or an acquisitive “Type D” reorganization. The advantages of a “Type A” consolidation include that consideration need not include voting stock. Up to 60% of consideration can be cash and property without tax consequences for the stock received. “Type C” advantages include less complexity that a “Type A” consolidation because there are no state, federal or foreign laws to follow, the acquiring company assumes only the target companies liabilities that it chooses, and cash or property consideration for 20% or less of fair market value of the property transferred is acceptable. And finally an acquisitive “Type D” reorganization allows a smaller target company to retain its existence, which seems to be the best option for you since name recognition is an important factor in the gardening market.
Thank you,
Jessica Schmitt
7-45:
In order for reorganizations to qualify to tax-free treatment, statutory regulations, as well as several judicial doctrines have become basic requirements for tax-free treatment. Looking at these judicial doctrines, one tax problem that can be identified with the proposed transaction would be the step transaction doctrine. It presents problems for an acquiring corporation who does not want all of the target’s assets, like Midori not wanting the spice products of Verdigris. If the transferring corporation tries to dispose of unwanted assets before reorganization, this doctrine could perhaps ruin the tax favor of the reorganization because the receiving corporation wouldn’t have obtained substantially all of the assets as required under Type C.
Chapter 8, research problem #4:
Mary Ellen Rogers
1101 Office Strip Lane, Suite 3
Hudson, OH