MODULE 36 TAXES: CORPORATE 633

for Rook Corp. stock pursuant to a plan of corporate reor- The remainder of Claudio' s NOL ($270,000 - $22,685 =
ganization. No gain or loss is recognized to a shareholder if $247,315) can be carried forward and used to offset Stellar's
stock in one party to a reorganization (Lad Corp.) is ex- taxable income (subject to the Sec. 382 limitation) in
changed solely for stock in another corporationIkook carryforward years. .
Corp.) that is a party to the reorganization.
162. (a) The requirement is to determine the recognized
158. (a) The requirement is to determine the item that is gain to be reported by Mueller on the exchange of her Disco
defined in the Internal Revenue Code as a corporate reor- bond for Disco preferred stock. The issuance by Disco Cor-
ganization. Corporate reorganizations generally receive poration of its preferred stock in exchange for its bonds is a
nonrecognition treatment. Sec. 368 of the Internal Revenue nontaxable "Type E" reorganization (i.e., a recapitalization).
Code defines seven types of reorganization, one of which is Since Mueller did not receive any boot, no part of her $400
listed. An "F' reorganization is a mere change in identity, realized gain is recognized.
form, or place of organization of one corporation. A stock
163. (b) The requirement is to determine the amount of
redemption is not a reorganization but instead results in
recognized gain in a recapitalization. Since a recapitaliza-
dividend treatment or qualifies for exchange treatment. A
tion is a reorganization, a realized gain will be recognized to
change of depreciation method or inventory method is a
the extent that consideration other than stock or securities is
change of an accounting method.
received, including the FMV of an excess principal amount
. 159. (c) The requirement is to determine the correct of securities received over the principal amount of securities
statement concerning corporate reorganizations. Answer (b) surrendered. Since no securities were surrendered, the entire
is incorrect because the reorganization provisions do provide $lO,500 FMV of the securities received by Roberts is treated
for tax-free treatment for certain corporate transactions. as boot. However, in this case, Roberts recognized gain is
Specifically, shareholders will not recognize gain or loss limited to her realized gain ($91,000 + $lO,500) - $95,000 =
when they exchange stock or securities in a corporation that $6,500.
is a party to a reorganization solely for stock or securities in
such corporation, or in another corporation that is also a
party to the reorganization. Thus, securities in corporations
not parties to the reorganization are always treated as "boot."
Answer (d) is incorrect because the term "a party to the re-
organization" includes a corporation resulting from the reor-
ganization (i.e., the consolidated company). Answer (a) is
incorrect because a mere change in identity, form, or place
of organization of one corporation qualifies as a Type F
reorganization.
160. (a) The requirement is to determine which is not a
corporate reorganization: A corporate reorganization is spe-
cifically defined in Sec. 368 of the Internal Revenue Code.
Sec. 368 defines seven types of reorganization, of which 3
are present in this item: Type A, a statutory merger; Type E,
a recapitalization; and, Type F, a mere change in identity,
form, or place of organization. Answer (a), a stock redemp-
tion, is the correct answer because it is not a reorganization
as defined by Sec. 368 of the Code.
161. (a) The requirement is to determine the amount of
Claudio's net operating loss (NOL) carryover that can be
used to offset Stellar's 2009 taxable income. The amount of
Claudio's NOL ($270,000) that can be utilized by Stellar for
2009 is limited by Sec. 381 to the taxable income of Stellar
for its full taxable year (before a NOL deduction) multiplied
by the fraction
Days after acquisition date
Total days in the tax table year

This limitation is 184/365 days x $360,000 = $181,479.

Additionally, since there was a more than fifty percentage
point change in the ownership of Claudio, Sec. 382 limits
the amount of Claudio' s NOL carryover that can be utilized
by Stellar to the fair market value of Claudio multiplied by
the federal long-term tax-exempt rate. $1,500,000 x 3% =
$45,000. However, for purposes of applying this limitation
for the year of acquisition, the limitation amount is only
available to the extent allocable to the days in Stellar's tax-
able year after the acquisition date.
$45,000 x 184/365 days = $22,685 t