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Exam 19: Corporate Formation,reorganization,and Liquidation

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Question 41

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Generally,before gain or loss is realized for tax purposes,the taxpayer must engage in a transaction.

A) True
B) False

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Question 42

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

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Question 43

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A shareholder will own the same percentage of stock in the distributing corporation under both a spin-off and a split-off of a subsidiary.

Keegan incorporated his sole proprietorship by transferring inventory,a building,and land to the corporation in return for 100 percent of the corporation's stock.The property transferred to the corporation had the following fair market values and tax-adjusted bases. The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Keegan. What amount of gain or loss does Keegan realize on the transfer of the property to his corporation?

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

A §338 transaction is a stock acquisition treated as an asset acquisition based on an election made by the acquirer.

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?

Julian transferred 100 percent of his stock in Lemon Company to Apricot Corporation in a Type B stock-for-stock exchange.In exchange,he received stock in Apricot with a fair market value of $200,000.Julian's tax basis in the Lemon stock was $400,000.What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

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 Michelle recognize in the complete liquidation,and what is her tax basis in the building and land after the complete liquidation?

Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation in exchange for stock with a fair market value of $600.In addition,Sami received stock with a fair market value of $50 in exchange for services she provided to the corporation in the incorporation process.Which of the following statements best describes the tax result to Sami because of the exchanges?

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

Control as it relates to a §351 transaction is strictly defined to be 80 percent or more of the voting power of the stock of the corporation to which property is transferred.

Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 in cash in a transaction that qualifies for deferral under §351.The corporation assumed a liability of $50 on the property transferred.What is Roy's tax basis in the stock received in the exchange?

A taxpayer who receives nonvoting preferred stock is not eligible for deferral in a §351 exchange.

A liquidation of a corporation always is a taxable event for the shareholder(s)of the liquidated corporation.

Which of the following principles does not need to be satisfied for an acquisition to be a tax-deferred reorganization?

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?

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

Which of the following statements best describes the application of the continuity of enterprise principle to a Type A tax-deferred reorganization?

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a §351 transaction.In all cases,the assumed liability will be treated as boot received by Jane.