Fuchsia Corporation Would Like to Merge with Mauve Corporation

question 90

Multiple Choice

Fuchsia Corporation would like to merge with Mauve Corporation. Which of the following will cause the transaction to be taxable?

• A) The shareholders holding 100% of Mauve receive only 30% of Fuchsia stock. This violates the continuity of interest because the Mauve shareholders' interest decreased by more than 50 percentage points.
• B) Mauve spins off assets not desired by Fuchsia before the transaction. This violates the continuity of business asset use test.
• C) The reason that Fuchsia desires to merge with Mauve is that Mauve has unused general business credits that Fuchsia can utilize immediately. This violates the sound business purpose doctrine.
• D) Mauve sells assets not desired by Fuchsia before the transaction. This violates the step transaction doctrine.

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