A taxpayer is considering a Type A Reorganization (Statutory Merger). Target shareholders will receive 60% stock of Acquirer and 40% cash. Will this qualify as a tax-free reorganization?

Answer options:

No, because cash is involved.

Yes, provided Continuity of Interest is met (generally 40%+ stock).

No, Type A requires 100% stock.

Yes, but only if it is a Type B reorganization.

How to approach this question

1. Identify Reorg Type: Type A (Merger). 2. Requirement: Continuity of Interest (COI). 3. Threshold: IRS generally looks for at least 40% of consideration to be stock. 4. Fact: 60% stock. 5. Result: Qualifies. (Cash portion is taxable boot, but reorg status holds).

Full Answer

B.Yes, provided Continuity of Interest is met (generally 40%+ stock).✓ Correct

Type A reorganizations are flexible regarding consideration. As long as the Continuity of Interest doctrine is satisfied (generally 40% stock is safe), the transaction qualifies. The cash received is taxed as boot.

Common mistakes

Confusing Type A with Type B (which requires solely voting stock).

Question 63 All questions Question 65

Practice the full CPA TCP Practice Exam

68 questions · hints · full answers · grading

More questions from this exam

Q01An individual taxpayer, filing single, exercised 1,000 Incentive Stock Options (ISOs) in Year 1 w...Hard Q02A taxpayer has the following income and losses for Year 1: - Salary: $200,000 - Interest ...Hard Q03In Year 1, a taxpayer donates a piece of artwork to a public charity (50% limit organization). Th...Hard Q04A taxpayer has $10,000 of investment interest expense in Year 1. They have the following income i...Medium Q05A single taxpayer has the following financial profile for Year 1: - Wages: $180,000 - Net...Medium

View all 68 questions →