Shr owns all the shares of Tar. Her basis in the Tar stock is $15, and her holding period is 2 years. Tar owns one asset, land with a fair market value of $100 in which Tar’s basis is $35. The land was acquired 5 years ago. Acq wants to acquire Tar. Tar merges into Acq, and Acq transfers $70 of Acq voting stock and $30 in cash to Shr.

1. What is Acq's basis in its own shares that it transfers to Tar?

2. How much gain or loss does Acq recognize on the transfer of its shares to Tar?

3. How much gain or loss does Shr recognize on receipt of the Acq stock and cash?

4. How much gain or loss does Tar recognize when it merges into Acq?

5. What is Shr’s adjusted basis in the Acq stock received from Tar?

6. What is Shr's holding period in the Acq received in the transaction?

7. What is Acq’s adjusted basis and holding period in the land received from Tar? Acq's Adjusted basis is  Acq's holding period is

8. What if anything happens to Tar’s earnings and profits? [answer1]

9. If instead of the prior facts, Acq transfers to Shr Acq voting stock worth $35 and $65 in cash how much if any gain or loss does Shr recognize when Tar merges into Acq?

10. What is your reason for the answer to the previous question?

11. Using the facts where stock worth $35 and cash of $65 was transferred by Acq, what is Shr's basis in the Acq stock?

12. What is Shr's holding period in the Acq stock that was worth $35 that it received in the transaction?

13. When Tar merges into Acq is that a forward or a reverse merger?

14. Briefly explain the reason why an acquisition would be structured as a reverse merger?

15. What is the major tax disadvantage of structuring an acquisition as a reverse triangular merger?

Answer rating: 100% (QA)

1 Investors pay capital gains taxes when they sell investments such as stocks bonds and real estate at a profit The amount of profit and by extension the amount of taxes due is calculated using the in... View the full answer