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Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?


A) Buyers generally prefer to buy assets because they can take a tax basis in the assets acquired equal to the assets' fair market value.
B) Buyers generally prefer to buy stock because they can take a tax basis in the underlying assets of the company acquired equal to the assets' fair market value.
C) Sellers generally prefer to sell assets in a tax-deferred reorganization to avoid higher tax rates imposed on gains from the sale of noncapital assets.
D) Sellers generally prefer to sell stock because they can recognize capital gain on the sale taxed at preferential rates.

E) A) and B)
F) A) and D)

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The definition of property as it relates to a §351 transaction includes money.

A) True
B) False

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Which of the following statements best describes the continuity of interest principle as it applies to a tax-deferred acquisition?


A) Continuity of interest requires each shareholder to receive at least 40 percent of the consideration received in equity of the acquirer.
B) Continuity of interest requires shareholders in the aggregate to receive at least 40 percent of the consideration received in equity of the acquirer.
C) Continuity of interest requires each shareholder to receive at least 80 percent of the consideration received in equity of the acquirer.
D) Continuity of interest requires shareholders in the aggregate to receive at least 80 percent of the consideration received in equity of the acquirer.

E) A) and B)
F) C) and D)

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Ken and Jim agree to go into business together selling old comic books and records. According to the agreement, Ken will contribute inventory valued at $200,000 in return for 80 percent of the stock in the corporation. Ken's tax basis in the inventory is $100,000. Jim will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualify as organizational expenditures). The accounting services are valued at $50,000. Please answer the following questions about the tax consequences of the transaction to Jim. a. What amount of income gain or loss does Jim realize on the formation of the corporation? b. What amount of gain or loss, if any, does he recognize? c. What is Jim's tax basis in the stock he receives in return for his contribution of services to the corporation?

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a. $50,000 compensation is realized.
b. ...

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Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received by the shareholders of the target corporation in the transaction.

A) True
B) False

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Which of the following statements does not describe a requirement that must be met in a tax-deferred reverse triangular merger?


A) The 40 percent continuity of interest test must be met with respect to the stock transferred from the acquisition corporation to the target corporation shareholders.
B) The target must hold substantially all of the target corporation's properties and the properties of the acquisition subsidiary after the merger.
C) The continuity of business enterprise test must be met with respect to the target corporation.
D) The target corporation shareholders must receive voting stock in the acquiring corporation.

E) B) and D)
F) B) and C)

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Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete liquidation of the company. In the exchange, Red Blossom received land with a fair market value of $500,000. The corporation's basis in the Tea Company stock was $300,000. The land had a basis to Tea Company of $600,000. What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives?


A) $200,000 gain recognized and a basis in the land of $600,000.
B) $200,000 gain recognized and a basis in the land of $500,000.
C) No gain recognized and a basis in the land of $600,000.
D) No gain recognized and a basis in the land of $300,000.

E) None of the above
F) B) and C)

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Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation in exchange for stock with a fair market value of $650 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange?


A) $800
B) $600
C) $550
D) $450

E) A) and B)
F) B) and C)

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Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $100,000. What amount of gain or loss does Mike recognize in the complete liquidation? Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $100,000. What amount of gain or loss does Mike recognize in the complete liquidation?

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Mike recognizes gain of $150,000 on the ...

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Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock with a fair market value of $3,000 and $2,000 in cash in a transaction that qualifies for deferral under §351. The corporation assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stock received in the exchange?


A) $6,000
B) $5,000
C) $4,000
D) $3,000

E) B) and C)
F) All of the above

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Which of the following statements best describes the tax results to a shareholder in a §351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?


A) Liabilities assumed by a corporation on a §351 transfer are always treated as boot.
B) Liabilities assumed by a corporation on a §351 transfer are never treated as boot.
C) Liabilities assumed by a corporation on a §351 transfer are treated as boot if the total liabilities assumed exceed the total basis of the assets transferred.
D) Liabilities assumed by a corporation on a §351 transfer are treated as boot if there is no business purpose for the assumption of the liabilities by the corporation.

E) A) and B)
F) B) and D)

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Which of the following statements best describes the tax law approach to recognizing gain or loss realized in an exchange?


A) Gain or loss realized is not recognized unless specifically stated otherwise in the Internal Revenue Code.
B) Gain or loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code.
C) Gain realized is recognized unless specifically stated otherwise in the Internal Revenue Code, but loss realized is not recognized unless specifically stated otherwise in the Internal Revenue Code.
D) Loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code, but gain realized is not recognized unless specifically stated otherwise in the Internal Revenue Code.

E) All of the above
F) None of the above

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The tax basis of property received by a noncorporate shareholder in a complete liquidation will be the property's fair market value.

A) True
B) False

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Jasmine transferred 100 percent of her stock in Woodward Company to Jefferson Corporation in a Type A merger. In exchange, she received stock in Jefferson with a fair market value of $600,000 plus $400,000 in cash. Jasmine's tax basis in the Woodward stock was $1,500,000. What amount of loss does Jasmine recognize in the exchange and what is her basis in the Jefferson stock she receives?


A) $500,000 loss recognized and a basis in Jefferson stock of $600,000.
B) $500,000 loss recognized and a basis in Jefferson stock of $1,100,000.
C) No loss recognized and a basis in Jefferson stock of $1,500,000.
D) No loss recognized and a basis in Jefferson stock of $1,100,000.

E) A) and B)
F) A) and C)

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Which of the following statements best describes the tax benefits that arise from the sale of §1244 stock?


A) §1244 allows an individual shareholder to exempt gain from sale of the stock from tax.
B) §1244 allows an individual shareholder to deduct all of the loss from sale of the stock as an ordinary loss in the year of the sale.
C) §1244 allows an individual shareholder to deduct up to $50,000 of the loss from sale of the stock as an ordinary loss in the year of the sale.
D) §1244 allows a corporate shareholder to deduct up to $50,000 of the loss from sale of the stock as an ordinary loss in the year of the sale.

E) All of the above
F) C) and D)

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Celeste transferred 100 percent of her stock in Supply Chain Company to Marketing Corporation in a Type A merger. In exchange, she received stock in Marketing with a fair market value of $500,000 plus $500,000 in cash. Celeste's tax basis in the Supply Chain stock was $1,200,000. What amount of loss does Celeste recognize in the exchange and what is her basis in the Marketing stock she receives?


A) $200,000 loss recognized and a basis in Marketing stock of $1,200,000.
B) No loss recognized and a basis in Marketing stock of $1,200,000.
C) $200,000 loss recognized and a basis in Marketing stock of $700,000.
D) No loss recognized and a basis in Marketing stock of $700,000.

E) C) and D)
F) B) and C)

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Which of the following statements does not describe a requirement that must be met in a tax-deferred forward triangular merger?


A) The 40 percent continuity of interest test must be met with respect to the stock transferred from the acquisition corporation to the target corporation shareholders.
B) The acquirer must hold substantially all of the target corporation's properties after the merger.
C) The continuity of business enterprise test must be met with respect to the target corporation.
D) The target corporation shareholders must receive voting stock in the acquiring corporation.

E) C) and D)
F) A) and B)

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Inez transfers property with a tax basis of $200 and a fair market value of $300 to a corporation in exchange for stock with a fair market value of $250 in a transaction that qualifies for deferral under §351. The corporation assumed a liability of $50 on the property transferred. What is the corporation's tax basis in the property received in the exchange?


A) $150
B) $200
C) $250
D) $300

E) A) and B)
F) C) and D)

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Which of the following statements best describes the recognition of loss on property transferred to shareholders in complete liquidation of a corporation?


A) The liquidated corporation always recognizes loss on the distribution of property in complete liquidation of the corporation.
B) The liquidated corporation never recognizes loss on the distribution of property in complete liquidation of the corporation.
C) The liquidated corporation recognizes loss on the distribution of property in complete liquidation of the corporation if the property is distributed to individuals who are not related parties to the corporation.
D) The liquidated corporation recognizes loss on the distribution of property in complete liquidation of the corporation only if the property is distributed to individuals who are related parties to the corporation.

E) None of the above
F) A) and B)

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Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger. In exchange, she received stock in Plum with a fair market value of $500,000 plus $500,000 in cash. Simone's tax basis in the Purple stock was $200,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?


A) $800,000 gain recognized and a basis in Plum stock of $1,000,000.
B) $800,000 gain recognized and a basis in Plum stock of $500,000.
C) $500,000 gain recognized and a basis in Plum stock of $500,000.
D) $500,000 gain recognized and a basis in Plum stock of $200,000.

E) None of the above
F) B) and C)

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