EXAM
#________
PRACTICE
EXAM FOR SPRING 2009
VALPARAISO
UNIVERSITY SCHOOL OF LAW
Final
Examination
Professor Potts
Spring
2008
Federal Income Taxation of
2
1/2 Hours
Corporate
Reorganizations
Read
these instructions very carefully at least twice.
This
is a 2 1/2 hour examination.
You
may have with you and use any printed or written materials you wish. No computer or calculating device is
permitted.
You
may not discuss this examination with anyone other than John Potts.
There
are multiple-choice and fill-in-the-blank (very short answer) questions
followed by short answer questions/problems. Weighting is indicated at the beginning of groups of
question.
Mark your examination number, and not your name on the examination and on any other material that you hand in. Mark answers to multiple-choice questions on the exam. Write the answer to fill-in-the-blank questions on the exam. There is space on the exam to answer the short answer questions/problems. Use of supplemental space for writing is addressed three paragraphs hence.
For
multiple-choice questions, circle the letter immediately preceding the answer
you select. A
wrong answer counts the same as no answer; there is no penalty for guessing
wrong. If you believe a question is a bad question
– it cannot be answered correctly – write a very short explanation
of the reason and state what the answer would be depending on how the question
was corrected.
In grading
multiple-choice answers there must be a "right" answer. Grading of multiple-choice answers will
be based on the content of the course, which includes assigned materials and
class discussion. Choose the best
answer, that is, the one that comes closest to agreeing with the course content
or most fully agrees with the course content. Some statements or portions of statements in the exam may be
quotations or paraphrases, without quotation marks or attribution, as part of
the testing process.
For
short answer questions/problems, although I believe there is adequate space to
answer on the exam, you may write your answers or supplement them in a blue
book if you wish. If you use a
blue book, mark your examination number and not your name on the blue book as
well as on this exam, which must be handed in
Do
not expect leeway beyond 2 1/2 hours for handing in these materials.
These
instructions should be read very carefully at least twice. Each question/problem should be read
and considered very carefully before it is answered.
All
section (¤) references are to the
Internal Revenue Code (IRC).
Have
a good summer!
Multiple-Choice/Fill-in-the-Blank
Questions
(Weighted 80% – 20 questions, 4% each)
1. In tax cases
involving corporate reorganizations, the U.S. Supreme Court has functioned as a
protector of the tax base.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
2. The rationale of the
corporate reorganization taxation provisions of U.S. federal law reflects the
congressional conclusion that taxation should not impede business
reorganizations because they are mere readjustments of a continuing interest in
property and the property received is substantially a continuation of the old
investment unliquidated.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
3. Judicially created
Ňcommon lawÓ principles of uncertain scope increase uncertainty in U.S. federal
income taxation of corporate reorganizations.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
4. Corporate reorganizations
are undertaken primarily to take advantage of applicable provisions of U.S. tax
law.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
5. Corporation X was
merged under state law into Corporation Y. Corporation X had four equal shareholders. Two of the shareholders of Corporation
X received cash from Corporation Y for their shares of Corporation X. The other two shareholders received
equal amounts of the stock of Corporation Y for their shares of Corporation
X. Assuming no additional facts
relevant to the determination, the continuity of interest requirement is met.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
6. The facts are the
same as in the immediately preceding question except that the four shareholders
of Corporation X each received equal amounts of cash as one-half their
compensation and each received equal amounts of stock in Corporation Y as the
other one-half of their compensation.
The continuity of interest requirement is met.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
7. Recapitalizations
are an uncommon form of non-acquisitive, non-divisive corporate reorganization.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
8. A common motive for
a corporate division is the desire to increase market recognition of the value
of a business.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
9. Assuming a loss
companyŐs net operating losses (NOLs) are first absorbed by carrying them back
to offset that companyŐs prior income, and assuming the loss company is taken
over in a corporate acquisition, the rationale for ¤382 is to allow the
loss companyŐs NOLs to offset only the future income generated by that loss
companyŐs business.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
10. For the tax-free benefits of ¤354
to apply, it is necessary that there be a corporate reorganization.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
11. For the tax-free benefits of ¤355
to apply, it is necessary that there be a corporate reorganization.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
12. Section 356 ŇReceipt of
additional considerationÓ generally applies when boot is received in a
transaction otherwise qualifying for tax-free treatment. In which of the following types of
reorganizations would boot generally not be permitted.
A. A merger under ¤368 (a)(1)(A).
B.
A
consolidation under ¤368 (a)(1)(A).
C.
An
acquisition under ¤368 (a)(1)(B).
D.
None of the above.
13. Section 356 ŇReceipt of
additional considerationÓ generally applies when boot is received in a
transaction otherwise qualifying for tax-free treatment. In which of the following types of
reorganizations would significant boot generally not be expected.
A. A transfer under ¤368 (a)(1)(D).
B.
A
recapitalization under ¤368 (a)(1)(E).
C.
A
mere change in identity, form, or place of organization of one corporation,
however effected.
D.
None
of the above.
14. If a transaction would be within
the meaning of both ¤ 368 (a)(1)(C) and ¤ 368 (a)(1)(D), then, for
purposes of IRC subchapter C in general, the transaction shall be treated as
within the meaning of ¤ 368 (a)(1)(C) and not within the meaning of ¤ 368
(a)(1)(D).
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
15. It is stated explicitly in ¤
368 that the term Ňa party to a reorganizationÓ includes an individual.
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
16. The reduction in taxation of
dividends was one step in an effort to harmonize taxation of profits taken from
a corporation with the reduction that resulted from elimination of the earnings
and profits accounts of all corporations that are taken over in mergers and
consolidations meeting the requirements of ¤ 368 (a)(1).
A.
True.
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
17. Section 482 is meant as
refinement of the phrase Ňa party to a reorganizationÓ.
A.
True
B.
False.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
18. Section 356 in a corporate
reorganization that otherwise qualifies for tax-free treatment occupies a
position roughly analogous to that of what provision relating to like-kind
exchanges?
______________
19. Section 356 in a corporate
reorganization that otherwise qualifies for tax-free treatment occupies a
position roughly analogous to that of what provision relating to tax-free
incorporations?
______________
20. The treatment of tax attributes
in a corporate reorganization, to the extent addressed by the IRC, is more akin
to the treatment of the tax attribute of basis in which of the following
situations?
A.
Property
passing by gift.
B.
Property
passing by inheritance.
C.
I
donŐt know. (Even if this is true,
it is a wrong answer.)
D.
I
donŐt care. (Even if this is true,
it is a wrong answer.)
ANSWER KEY AT END
(Weighted 20% – two questions/problems, 10% each)
1. Write a
multiple-choice question suitable for use on this exam. (If you wish further guidance, consider
making the question similar to the preceding multiple-choice questions in
length and difficulty.) Answer the
question by circling the letter of the correct answer. Provide the IRC or regulations
reference or casebook page on which you rely for the answer.
Short
Answer Question/Problem 2 is on the next page.
2. Argue in favor
of, or against (your choice), one significant change in federal income taxation
of corporate reorganizations in which the argument is based on policy. Balance your argument with competing
considerations, if any.
PRACTICE EXAM FOR SPRING 2009
ANSWER KEY
Multiple Choice
1. A. Page 698 and materials as a whole.
2. A. Page 698-699.
3. A. Page 699.
4. B. John Zegis and John Potts
5. A. Rev. Rul. 66-224. p. 707.
6. A. Rev. Rul. 66-224, p. 707.
7. B. Page 752.
8. A. Page 769.
9. A. Page 823.
10. A. Face of ¤354.
11. B. Face of ¤355.
12. C. No boot in a ŇBÓ.
13. C. The definition or idea.
14. B. ¤ 368 (a)(2)(A).
15. B. See ¤ 368 (b).
16. B.
17. B.
18. Section 1031 (b).
19. Section 351 (b).
20. A.