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Widget owes $200 (in the form of 20-year bonds held by Ligget Corporation with an adjusted basis of $190) and has EP of $200.
Widget owes $200 (in the form of 20-year bonds held by Ligget Corporation with an adjusted basis of $190) and has E&P of $200. Assume that each Widget share is worth $10 and that property exchanged therefor is worth $10. Assume that each transaction has a proper business purpose, there is a continuity of Widget's business enterprise, the transaction is pursuant to a plan of reorganization and the face amount of debt is its FMV. XYZ Corporation is a publicly held corporation whose stock is traded on the New York Stock Exchange (NYSE). What are the tax consequences to Alexa, Bernard, Curtis, Ligget Corporation and XYZ Corporation?
a. On January 2 of the current year, XYZ Corporation acquires all of the Widget Corporation common stock from Alexa, Bernard and Curtis, as a result of separate negotiations with each shareholder, solely in exchange for voting preferred stock of XYZ.
b. Assume instead that Widget is a public company, and that XYZ acquires 100% of Widget's stock by a public tender offer (cash) and immediately liquidates Widget.
c. Assume for b. that XYZ also purchases the Widget bonds from Ligget for $200 cash.
d. Assume instead for b. that XYZ swaps its own 15-year registered bonds for the Widget bonds held by Ligget.
e. Assume in b. above, that XYZ also agrees to advance $100 in cash to Widget.
