Outline Of The Tax Memorandum Essay

1330 Words6 Pages
Tax Memorandum #1 Round Table, Inc. and Avalon Corporation have agreed on a straight B-type reorganization, which will be signed on November 1st, 2015. However, it will not close and take effect until December 31st, 2016, where Round Table will acquire 90% of the issued and outstanding common stock of Avalon in exchange for common stock in Round Table. Avalon currently has 1,000 shares outstanding, all of which are voting common stock, that makeup a $40,000,000 market value ($40,000/share). In addition to the stock for stock agreement, the two entities have engaged in talks of other transactions that could have an effect on the tax-free makeup of a B-type reorganization. In January 2016, the CEO of Round Table, Percival, received a cash bonus that he used to acquire 50 shares of Avalon from an unrelated single party. The scope of this specific transaction merely needs to be analyzed because it is necessary to conclude if it should be a part of the stock for stock exchange that occurs between the two entities. The transaction is at risk because of its potential to violate the “solely for stock” requirement of a B-type reorganization. There are several components of Percival’s purchase that should be examined to determine whether it would be considered part of the stock for stock exchange, which could then have an impact on the tax-free nature of the exchange. First, the timing of the transaction is a very important factor in the purchase. Two months after Round Table agreed
Get Access