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Exam 8: Corporate Formation, Reorganization, and Liquidation

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Question 1

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Camille transfers property with a tax basis of $800 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $850 and $350 in cash in a transaction that qualifies for deferral under section 351. Camille also incurred selling expenses of $100. What is the amount realized by Camille in the exchange?

A) $1,200
B) $1,100
C) $850
D) $750

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

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Question 2

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Amy transfers property with a tax basis of $900 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $450 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is Amy's tax basis in the stock received in the exchange?

A) $900
B) $750
C) $650
D) $450

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

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Question 3

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Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Inc. After liquidating its remaining inventory and paying off its remaining liabilities, Amelia had the following tax accounting balance sheet. Under the terms of the agreement, Gary will receive the $100,000 cash in exchange for his interest in Amelia. Gary's tax basis in his Amelia stock is $30,000. Laura will receive the building and land in exchange for her interest in Amelia. Laura's tax basis in her Amelia stock is $60,000. What amount of gain or loss does Amelia recognize in the complete liquidation?

Which of the following amounts is not included in the computation of a property's adjusted basis in an exchange?

Which of the following statements best describes the concept of control as it applies to a section 351 transaction?

Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Inc. After liquidating its remaining inventory and paying off its remaining liabilities, Amelia had the following tax accounting balance sheet. Under the terms of the agreement, Gary will receive the $100,000 cash in exchange for his interest in Amelia. Gary's tax basis in his Amelia stock is $30,000. Laura will receive the building and land in exchange for her interest in Amelia. Laura's tax basis in her Amelia stock is $60,000. What amount of gain or loss does Gary recognize in the complete liquidation?

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

Which of the following class of stock is not allowed to be used in a section 351 transaction?

Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Inc. After liquidating its remaining inventory and paying off its remaining liabilities, Amelia had the following tax accounting balance sheet. Under the terms of the agreement, Gary will receive the $100,000 cash in exchange for his interest in Amelia. Gary's tax basis in his Amelia stock is $30,000. Laura will receive the building and land in exchange for her interest in Amelia. Laura's tax basis in her Amelia stock is $60,000. What amount of gain or loss does Laura recognize in the complete liquidation and what is Laura's tax basis in the building and land after the complete liquidation?

To meet the control test under section 351, taxpayers transferring property to a corporation must in aggregate own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock after the transfer.

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?

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 Ken. a. What amount of gain or loss does Ken realize on the formation of the corporation? b. What amount of gain or loss, if any, does he recognize? c. What is Ken's tax basis in the stock he receives in return for his contribution of property to the corporation?

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

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

Which of the following statements best describes a section 338 transaction?

Which of the following requirements do not have to be met in a section 351 transaction?

Type A reorganizations involve the transfer of assets of targets corporation via a merger or consolidation.

Francine incorporated her 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 corporation also assumed a mortgage of $60,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $150,000. a. What amount of gain or loss does Francine realize on the transfer of the property to her corporation? b. What amount of gain or loss does Francine recognize on the transfer of the property to her corporation? c. What is Francine's basis in the stock she receives in her corporation?

Harry and Sally formed Empire Corporation on January 2. Harry contributed cash of $500,000 in return for 50 percent of the corporation's stock. Sally contributed a building and land with the following fair market values and adjusted basis in return for 50 percent of the corporation's stock. To equalize the exchange, Empire Corporation paid Sally $100,000 in addition to her stock. a. What amount of gain or loss does Sally realize on the formation of the corporation? b. What amount of gain or loss, if any, does she recognize? c. What is Sally's tax basis in the stock she receives in return for her contribution of property to the corporation? d. What adjusted basis does Empire Corporation take in the land and building received from Sally?

Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $350 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is the amount realized by Roberta in the exchange?