1. G, B and P were the founders and shareholders of Interior Decorators Inc. (IDI). G would...
Question:
1. G, B and P were the founders and shareholders of Interior Decorators Inc. ("IDI"). G would held 50%, B held 25% and P held 25% of the common voting stock. F lent $50,000 to the corporation in return for a 5-year installment note at 8% interest. C, J, M and K were the founders and shareholders of a competing firm, Design Studios, Inc. ("DSI"). Each of them hold a 25% interest in DSI. After negotiations, the corporate boards of IDI and DSI agree that DSI would acquire IDI.
Compare the tax results and the advantages and disadvantages of structuring the transaction in the following different ways:
a. DSI creates a new subsidiary, S. DSI then acquires all of the IDI stock from G, B and P in return for DSI voting stock. Immediately thereafter, DSI contributes the recently acquired IDI stock to S.
b. DSI creates a new subsidiary S, by transferring DSI stock in return for S stock. S acquires all of the IDI stock from G, B and P in return for DSI voting stock.
i. What is the difference if S acquired all of the IDI stock in return for DSI voting stock and S voting stock?
ii. For DSI voting stock and S bonds?
c. DSI acquires all of IDI's assets in return for DSI voting stock. Immediately thereafter, DSI contributed the assets to S, a newly created subsidiary. IDI then distributes the DSI voting stock to its shareholders in liquidation.
d. DSI creates a new subsidiary S, by transferring DSI voting stock in return for S stock. S acquires all of the assets of IDI in return for the DSI voting stock. IDI then liquidates distributing the DSI stock to its shareholders. What difference if:
i. S acquired all of the IDI assets in return for DSI voting stock and S voting stock?
ii. For DSI voting stock and bonds?