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Exam 19: Corporate Formation, Reorganization, and Liquidation

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Question 31

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Tristan transfers property with a tax basis of $900 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $900 and $200 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) $1,200
B) $1,100
C) $1,000
D) $900

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

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Question 32

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Phillip 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 was $400,000. The transaction met the requirements to be tax-deferred under §351. a. What amount of net gain or loss does Phillip realize on the transfer of the property to his corporation? b. What amount of gain or loss does Phillip recognize on the transfer of the property to his corporation? c. What is the corporation's adjusted basis in each of the assets received in the exchange?

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a. Net $50,000 loss
b. Phillip does not ...

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Question 33

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In December 2017, Jill incurred a $50,000 loss on the sale of Crown Corporation stock that she purchased in 2010. The stock satisfied all of the §1244 stock requirements at the time of issue. Jill is married to Jack and together they file a joint tax return. How much of the loss can Jack and Jill deduct in 2017, assuming they do not have capital gains in the current or prior years, and what is the character of the loss?

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

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?

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?

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

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 statements best describes the requirement that must be met in a tax-deferred Type B stock-for-stock reorganization?

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

Paladin Corporation transferred its 90 percent interest to Furman Company as part of a complete liquidation of the company. In the exchange, Paladin received land with a fair market value of $1,000,000. The corporation's basis in the Furman Company stock was $400,000. The land had a basis to Furman Company of $200,000. What amount of gain does Paladin recognize in the exchange and what is its basis in the land it receives?

Gain or loss is always recognized when realized for tax purposes.

Sue transferred 100 percent of her stock in Oakland Company to Applegate Corporation in a Type A merger. In exchange she received stock in Applegate with a fair market value of $800,000 plus $400,000 in cash. Sue's tax basis in the Oakland stock was $1,500,000. What amount of gain or loss does Sue recognize in the exchange and what is her basis in the Applegate stock she receives?

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 liquidated corporation will always recognize gain in a complete liquidation.

Which of the following statements best describes the impact of receiving boot in a section 351 transaction?

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

Han transferred land to his corporation in a section 351 transaction. Han had held the land for two years prior to the transfer. The corporation will tack Han's holding period for the land.

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?

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?