Lesson 8.2.4 Type D Reorganizations

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Del curso dictado por University of Illinois at Urbana-Champaign

Taxation of Business Entities I: Corporations

13 calificaciones

University of Illinois at Urbana-Champaign

Taxation of Business Entities I: Corporations

13 calificaciones

Curso 3 de 5 en SpecializationU.S. Federal Taxation

This course provides an introduction to the U.S. federal income taxation of corporations and their shareholders. The course focuses on the relevant provisions of Subchapter C of the Internal Revenue Code, as well as related Treasury Regulations and judicial opinions, governing corporate formation, operations, distributions, and liquidation. Practical in-class study problems facilitate self-discovery of technical tax knowledge along with the development of a variety of professional skills and attitudes.

De la lección

Module 8: Corporate Reorganizations

In this module, you will explore corporate reorganizations. First, some background on the history of corporate restructuring will be given. Next, you will be introduced to the different types of tax-deferred reorganizations. Finally, you will learn analyze the tax consequences of these reorganizations.

Lesson 8.2.1 General Requirements5:06

Lesson 8.2.2 Type A Reorganizations6:01

Lesson 8.2.3 Type B and C Reorganizations2:43

Lesson 8.2.4 Type D Reorganizations3:01

Lesson 8.2.5 Type E, F, and G Reorganizations2:11

Conoce a los instructores

Michael P Donohoe, PhD, CPA
Associate Professor of Accountancy and PwC Faculty Fellow
Department of Accountancy, Gies College of Business

[MUSIC]

In essence, type A, B, and C reorganizations are combinations,

as one or more corporations join forces in various ways.

Type D reorganizations, however, are quite different,

because they are largely used to divide a corporation.

In a divisive reorganization, the terminology is reversed,

such that the transferor is the acquiring corporation and

the transferee is the target.

The use of illustrations is especially helpful in these cases.

However, Type D reorganizations can also combine corporations as well,

confusing, I know.

For example, a non-divisive Type D reorganization

involves a corporation transferring all or part of its assets to another corporation.

And immediately after, the shareholders of the transferor corporation own at least

50% of the voting power or value of the transferee corporation.

This structure is similar to a Type C reorganization.

Thus, we will focus on divisive reorganizations.

There are many reasons why a corporation might divide itself by transferring assets

to two or more other corporations.

For example, a corporate division can resolve disagreements among shareholders,

mitigate product liability concerns and

facilitate tax planning in family-owned organizations.

In a Type D divisive reorganization, one or more corporations are formed to receive

all or part of the transferring corporation's assets.

In exchange for

its assets, the transferring corporation must receive at least 80% of the newly

formed corporation's stock, which must be transferred to its shareholders.

Both assets transferred and assets retained by the transferring corporation

must be from active businesses, conducted for at least 5 years beforehand.

These broad requirements create three separate types of

divisive reorganizations.

Spin-offs, split-offs and split-ups.

To examine each type, assume West Indies Corporation is formed to facilitate

a corporate division by Sunchaser Shakery Corporation.

In a spin-off, West Indies is formed to receive some of Sunchaser's assets in

exchange for the stock of West Indies.

As the shareholder of Sunchaser,

Nicholas receives the West Indies stock without surrendering his Sunchaser stock.

In the end, two corporations now exist.

A split-off is somewhere to the spin-off just described, except Nicholas surrenders

his Sunchaser stock in exchange for the West Indies stock.

Thus once again, two corporations now exist.

Finally, in a split-up two or more corporations, West Indies and

Marley, are formed to receive substantially all the assets of Sunchaser.

The stock of West Indies and

Marley is exchanged for Sunchaser's stock which then liquidates.

This figure illustrates the two potential organizational structures after

a split-up.

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