MODULE 36 TAXES: CORPORATE, 585

5. Type E-a recapitalization to change the capital structure of a single corporation (e.g.,
bondhold-
ers exchange old bonds for new bonds or stock)
6. Type F-a mere change in identity, fOITn, or place of organization (e.g., name change, change
of
state of incorporation)
7. Type G-a transfer of assets by an insolvent corporation or pursuant to bankruptcy
proceedings,
with the result that former creditors often become the owners of the corporation
8. For the reorganization to be tax-free, it must meet one of the above definitions and the exchange must
be made under a plan of reorganization involving the affected corporations as parties to the reorgani-
zation. It generally must satisfy the judicial doctrines of continuity of shareholder interest, business
purpose, and continuity of business enterprise.
9. Continuity of shareholder interest-The shareholders of the transferor (acquired) corporation
must receive stock in the transferee (acquiring) corporation at least equal in value to 50% of the
value of all of the transferor's formerly outstanding stock. This requirement does not apply to
Type E and Type F reorganizations.
10. Continuity of business enterprise-The transferor's historic business must be continued, or a
significant portion (e.g., 1/3) of the transferor's historic assets must be used in a business. This
requirement does not apply to Type E and Type F reorganizations.
11. No gain or loss is generally recognized to a transferor corporation on the transfer of its property
pursuant to a plan of reorganization.
12. The transferee corporation's basis for property received equals the transferor's basis plus gain
recognized (if any) to the transferor.
13. Gain is recognized on the distribution to shareholders of any property other than stock or
securities
of a party to the reorganization (e.g., property the transferor retained and did not transfer to the ac-
quiring corporation), as if such property were sold for its FMV.
14. No gain or loss is recognized by a corporation on the disposition of stock or securities in another cor-
poration that is a party to the reorganization.
15. No gain or loss is generally recognized on the distribution of stock or securities of a controlled
subsidiary in a qualifying spin-off, split-off, or split-up. However, the distributing corporation
must recognize gain on the distribution of its subsidiary,' s stock if immediately after the distribu-
tion, any person holds a 50% or greater interest in the distributing corporation or a distributed sub-
sidiary that is attributable to stock acquired by purchase during the five-year period ending on date
of distribution.
16. Gain is recognized on the distribution of appreciated boot property.
17. If a shareholder receives boot in a reorganization, gain is recognized (but not loss).
18. Boot includes the FMV of an excess of principal (i.e., face) amount of securities received over
the
principal amount of securities surrendered.
EXAMPLE: In a recapitalization, a bondholder exchanges a bond with a face amount and basis of $1 ,000, for a
new bond with aface amount of $1,500 and afair market value of$1,575. Since an excess face amount of security
($500) has been received, the bondholder's realized gain of $575 will be recognized to the extent of the fair market
value of the excess [($5001$1,500) x $1,575] = $525.
19. Recognized gain will be treated as a dividend to the extent of the shareholder's ratable share of

earnings and profits of the acquired corporation if the receipt of boot has the effect of the distribu-
tion of a dividend.
(1) Whether the receipt of boot has the effect of a dividend is determined by applying the Sec.
302(b) redemption tests based on the shareholder's stock interest in the acquiring
corporation
(i.e., as if only stock had been received, and then the boot was used to redeem the stock
that
was not received).
(2) The receipt of boot will generally not have the effect of a dividend, and will thus result in
capital gain.
20. A shareholder's basis for stock and securities received equals the basis of stock and securities sur-
rendered, plus gain recognized, and minus boot received.