Research Problems 1
As part of an integrated plan. Manchester Corporation creates Bedford Corporation as a wholly owned subsidiary. Then, Manchester acquires all of Bismarck Corporation by merging Bedford into Bismarck. After this transaction, Bedford no longer exists, and Manchester owns all of the Bismarck stock valued at $1million. Bismarck shareholder received Manchester stock valued at $700,000 and $300,000 of cash for their share of Bismarck. Lastly, Bismarck combines with Manchester in a statutory merger.
The final result is that Manchester owns all of the assets of Bismarck, and 70 percent of the Bismarck shareholders are now Manchester shareholders. Explain whether this step transaction restructuring qualifies as a tax-free reorganization. Support your position with citations to primary tax sources.
Problem 2
The Chief consolidated group reports the following results for the tax year. Dollar amounts are listed in millions.
|
Parent
|
Sub One
|
Sub Two
|
Sub Three
|
Consolidated
|
|
Ordinary Income
Capital gain/loss
|
$600
-0-
|
$200
-0-
|
$140
60
|
($90)
(25)
|
$850
35
|
|
1231 gain/loss Separate taxable incomes
|
250
$850
|
-0-
$200
|
(50)
$150
|
- 0 -
( 90 )
with a $25 capital loss carryover
|
200
|
|
Consolidated taxable income
Consolidated Tax Liability
Energy tax credit, from Sub One
Net tax due
|
|
|
|
|
$1,085
$ 380
( 70)
$ 310
|
Determine each member's share of the consolidated tax liability. All of the members have consented to use the relative taxable income method. Assume a 35% marginal tax rate.
Question 3
Martinho is a citizen of Brazil and lives there year-round. He has invested in a plot of Illinois farmland with a tax basis to him of $1 million. Martinho hasno other business or investment activities in the United States. He is not subject to the alternative minimum tax. Upon the sale of the land for $1.5 million to Emma, an Illinois person, what are the Federal income tax consequences to Martinho?