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.

---

Definitions:

Inherit

To receive assets or liabilities left by a deceased person through their will or by statutory rights.

Legal Proceeding

A formal process governed by law, including trials and hearings, in which legal judgments and decisions are made.

Legal Parents

Individuals who have legal authority and responsibility for a child, which can arise through biological relationship, adoption, or legal designation.

Adoption

A procedure in which persons become the legal parents of a child who is not their biological child.