Acquiring Corporation transfers $1 million of its voting common stock and $100,0

Question

Acquiring Corporation transfers $1 million of its voting common stock and $100,000 cash to Target Corporation in exchange for 90% of the Target assets. The assets retained by Target are used to settle its liabilities. Target then distributes the Acquiring stock and cash received to its shareholders in exchange for all of their Target shares. Target then liquidates. This restructuring qualifies as a:

a. Taxable exchange. b. "Type A" reorganization. c. "Type C" reorganization. d. "Type D" reorganization. e. "Type B" reorganization.

Explanation / Answer

Section 368 of the IRS Revenue Code identifies seven types of corporate reorganizations

This is “ Type A “ reorganization , which is termed as Mergers and Consolidations defines the Mergers and consolidations are both based on the acquisition of a corporation's assets by another company,

As in this case Acquiring Corporation transfers $1 million of its voting common stock and $100,000 cash to Target Corporation in exchange for 90% of the Target assets.

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