New Gate coporation desires to acquire Old Post in a nontaxable transaction. Prior to entering into the transaction with New Gate, Old Post issues $800,000 worth of 15-year bonds paying 6% annually. The bonds are purchased by most of Old Post's shareholders and also by many individuals who have no affiliation with Old Post. New Gate makes an offer to the shareholders to exchange two shares of its common voting class A stock for each common share of Old Post and 20 shares of common voting class B stock for each preferred share of Old Post.

Most of the shareholders are reluctant to make the exchange because of the favorable terms of the Old Post bonds in exchange for the New Gate bonds paying 6% interest annually, with an equal principal amount and a 15-yr term. All of the Old Post bondholders exchange their debentures, and 90% of the Old Post shareholders exchange their stock. Can these qualify as nontaxable corporate reorganizations? How should these transactions be treated by New Gate, Old Post, and Old Post shareholders?