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Exam 19: Corporate Formation, Reorganization, and Liquidation

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Question 1

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Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. Afterliquidating 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?

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Michelle recognizes gain of $200,000 on ...

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Question 2

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

A) Liabilities assumed by a corporation on a section 351 transfer are treated as boot if there is no business purpose for the assumption of the liabilities by the corporation.
B) Liabilities assumed by a corporation on a section 351 transfer are never treated as boot.
C) Liabilities assumed by a corporation on a section 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 section 351 transfer are always treated as boot.

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

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Question 3

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Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in aType 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?

April transferred 100 percent of her stock in June Company to March Corporation in a taxable merger. In exchange she received stock in March with a fair market value of $400,000 plus$1,200,000 in cash. April's tax basis in the June stock was $2,000,000. What amount of loss doesApril recognize in the exchange and what is her basis in the March stock she receives?

Sue transferred 100 percent of her stock in Oakland Company to Applegate Corporation in a Type Amerger. 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?

Which of the following statements best describes the "built-in loss" rules that apply to property transferred to a corporation under section 351?

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 the tax consequences of a section 338 election?

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

In a tax-deferred transaction, the calculation of a taxpayer's tax basis in property receivedalways begins with its cost to the taxpayer.

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 section 351. The corporation assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stockreceived in the exchange?

Which statement best describes the concept of realization as it applies to gain or loss?

Ken and Jim agree to go into business together selling old comic books and records. According tothe 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?

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

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 herinterest 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?

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?

A liquidated corporation will always recognize gain in a complete liquidation.

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

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?

Oriole, Inc. decided to liquidate its wholly-owned subsidiary, Tiger Corporation. Tiger had the following tax accounting balance sheet. a. What amount of gain or loss does Tiger recognize in the complete liquidation? b. What amount of gain or loss does Oriole recognize in the complete liquidation? c. What is Oriole's tax basis in the building and land after the complete liquidation?