QUESTION
Suppose you are a CPA, and you have a corporate client that has been operating for several years. The company is considering expansion through reorganizations. The company currently has two (2) subsidiaries acquired through Type B reorganizations. The client has asked you for tax advice on the benefit of a Type A, C, or D reorganization over a Type B reorganization. Additional facts regarding the issues are reflected below.
The company currently files a consolidated income tax return with the two (2) subsidiaries acquired through a Type B reorganization.
ABC Corporation, a subsidiary targeted by the client for takeover, has substantial net operating losses.
XYZ Corporation and BB Corporation will be acquired as subsidiaries in the next six (6) months.
Use the Internet to research the rules and income tax laws regarding Types A, B, C, and D reorganizations and consolidated tax returns. Be sure to use the six (6) step tax research process in Chapter 1 that was demonstrated in Appendix A of your textbook as a guide for your written response.
Write a four to six (4-6) page paper in which you:
- Compare the long-term tax benefits and advantages of each type of reorganization and recommend the type of reorganization that will be most beneficial to the client.
- Suggest the type of reorganization the client should use for the ABC Corporation based on your research. Justify the response.
- Propose a taxable acquisition structure for the client’s planned acquisitions over a nontaxable reorganization. Assess the value of a taxable transaction over a nontaxable reorganization for the client.
- Examine the value and limitations of including the ABC Corporation if acquired as a wholly owned subsidiary in the consolidated return and provide a recommendation to your client. Support the recommendation with applicable research.
- Create a scenario that will allow the client to reduce any disadvantages from filing a consolidated return as a member of a controlled group.
- Use the six (6) step tax research process, located in Chapter 1 and demonstrated in Appendix A of the textbook, to record your research for communications to the client.