Question

39. Identify which of the following statements is false. A) In a Type C reorganization, the acquired corporation must distribute stock, securities, and other property it receives to its shareholders. B) A Type C reorganization is less flexible than a Type A reorganization because of the solely for-voting stock requirement of a Type C. C) To qualify as a Type C reorganization, the target corporation must be formally dissolved. D) In a Type C reorganization, shareholders of the acquiring corporation generally do not have to approve the acquisition Page Ref: C: 7-26. (Slide 32). 40. Which of the following corporations is an includible corporation for purposes of filing a consolidated tax return? A) insurance companies B) 5 corporations C) car manufacturing corporation D) foreign corporations 41. Identify which of the following statements is true. A) Corporations that join in a consolidated return must adopt the same tax year as the parent corporation B) Permission to discontinue the filing of consolidated tax returns is sometimes granted by the IRS. C) Additional administrative costs may be incurred when filing a consolidated tax return D) All of the above are true.

Answer 1

Ans to Ques 39. Type “C” acquisition is the transfer of the assets of the seller to the acquirer in exchange for the voting stock of the acquirer. This acquisition has the following characteristics:

• The acquirer must buy at least 80% of the fair market value of the acquiree’s assets,
• The acquirer can use cash only if it uses its voting stock to buy at least 80% of the fair market value of the acquiree’s assets
• The selling entity must be liquidated
• It must meet the continuity of business enterprise rule
• It must meet the continuity of interest rule
• The acquirer may not have to gain the approval of its shareholders for the transaction, since this is an asset purchase. The acquired entity must gain the approval of its shareholders for the transaction.

Hence the Option A is False, as the acquired corporation is not required to distribute stock, securities and other properties it receives to its shareholders.

Ans to Ques 40. There are few Corporations which are in-eligible to be included on a consolidated return, these include S Corporations, tax exempt corporations organised under section 501 of the Internal Revenue Code like charities, insurance companies, corporate entities formed outside United States or in a US possession etc.

In this case Option C. is correct, ie 'Car manufacturing corporations are eligible to be included for consolidated tax filing.

Ans to Ques 41. The consolidated tax return is required to be filed by the parent of the consolidated group and each affiliate is required to follow the parent's tax year. Further if a consolidated return is required for a taxable year, the Commissioner, upon application by the common parent, may for good cause shown grant permission to a group to discontinue filing consolidated returns. Any such application shall be made to the Commissioner of Internal Revenue, Washington, DC 20224, and shall be made not later than the 90th day before the due date for the filing of the consolidated return (including extensions of time). One of the disadvantage is that filling a Consolidated Tax return may incur additional administrative cost in complying with consolidated return regulations.

Hence in the above case option D is correct.