Question 1

Identify which of the following statements is false.

Accepted Answer

A)  The rules for the recognition of a gain or loss by a corporation that distributes property in redemption of its stock are the same as the rules for property distributions that are not in redemption of stock. 
B)  Generally, little or no gain is recognized by the redeeming shareholder in a qualified Sec. 303 redemption. 
C)  When a stock redemption is considered a sale of stock by the shareholder, the E&P of the redeeming corporation is reduced by the FMV of the property used to redeem the stock. 
D)  Under Sec. 311, a corporation does not recognize a loss when it distributes property that has declined in value. 
A)  The rules for the recognition of a gain or loss by a corporation that distributes property in redemption of its stock are the same as the rules for property distributions that are not in redemption of stock. 
B)  Generally, little or no gain is recognized by the redeeming shareholder in a qualified Sec. 303 redemption. 
C)  When a stock redemption is considered a sale of stock by the shareholder, the E&P of the redeeming corporation is reduced by the FMV of the property used to redeem the stock. 
D)  Under Sec. 311, a corporation does not recognize a loss when it distributes property that has declined in value.

Question 2

Jack Corporation redeems 200 shares of its stock for $100,000 from Junior, who inherited the stock from his father, Ken. The stock's FMV on Ken's date of death was $90,000. Ken's basis in the stock was $40,000. Jack Corporation had an E&P balance of $300,000. If the redemption qualifies under Sec. 303, Junior will

Accepted Answer

A)  recognize a capital gain of $10,000. 
B)  recognize a capital gain of $60,000. 
C)  recognize $100,000 in dividend income. 
D)  recognize dividend income of $50,000 and a capital gain of $10,000. 
A)  recognize a capital gain of $10,000. 
B)  recognize a capital gain of $60,000. 
C)  recognize $100,000 in dividend income. 
D)  recognize dividend income of $50,000 and a capital gain of $10,000.

Question 3

Tia receives a $15,000 cash distribution from Main Corporation in March of the current year. Main has $6,000 of accumulated E&P at the beginning of the year and $12,000 of current E&P. Main also distributed $15,000 in cash to Betty, who purchased all 300 shares of Main stock from Tia in June of the current year. What tax issues should be considered with respect to the distributions paid to Tia and Betty?

Accepted Answer

• Since the two cash distributions excee

Question 4

Nichol Corporation has 100 shares of common stock outstanding. Nichol repurchased all of Ned's 30 shares for $35,000 cash during the current year. Ned received the shares as a gift from his mother three years ago. They have a basis to him of $16,000. Nichol Corporation has $100,000 in current and accumulated E&P. Ned's mother owns 40 of the remaining shares; unrelated individuals own the other 30 shares. What tax issues should be considered with respect to the corporation's purchase of Ned's shares?

Accepted Answer

• What is Ned's stock ownership before a

Question 5

Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year. Current E&P is $20,000. During the year, the corporation makes the following distributions to its sole shareholder who has a $22,000 basis for her stock.   The treatment of the $15,000 August 1 distribution would be

Accepted Answer

A)  $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P. 
B)  $15,000 is taxable as a dividend from accumulated E&P. 
C)  $4,000 is taxable as a dividend from accumulated E&P, and $11,000 is tax-free as a return of capital. 
D)  $5,000 is taxable as a dividend from current E&P, and $10,000 is tax-free as a return of capital. 
A)  $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P. 
B)  $15,000 is taxable as a dividend from accumulated E&P. 
C)  $4,000 is taxable as a dividend from accumulated E&P, and $11,000 is tax-free as a return of capital. 
D)  $5,000 is taxable as a dividend from current E&P, and $10,000 is tax-free as a return of capital.

Question 6

Gould Corporation distributes land (a capital asset) worth $90,000 to Gerry, a shareholder. The land has a $30,000 basis to Gould. What is the amount and character of the gain or loss recognized by Gould?

Accepted Answer

Gould recognizes a $

Question 7

Identify which of the following statements is true.

Accepted Answer

A)  The holding period for property received by a shareholder in a nonliquidating distribution begins on the day after the distribution. 
B)  When making a nonliquidating distribution, a corporation recognizes gains and losses. 
C)  When making a nonliquidating distribution, the corporation's E&P is reduced by the property's FMV even though the property's basis is greater than its FMV. 
D)  All of the above are false. 
A)  The holding period for property received by a shareholder in a nonliquidating distribution begins on the day after the distribution. 
B)  When making a nonliquidating distribution, a corporation recognizes gains and losses. 
C)  When making a nonliquidating distribution, the corporation's E&P is reduced by the property's FMV even though the property's basis is greater than its FMV. 
D)  All of the above are false.

Question 8

Jerry purchased land from Winter Harbor Corporation, his 100%-owned corporation, for $275,000. The corporation purchased the land three years ago for $300,000. Similar tracts of land located nearby have sold for $400,000 in recent months. What tax issues should be considered with respect to the corporation's sale of the land?

Accepted Answer

• What reasons might cause the sale to b

Question 9

Wills Corporation, which has accumulated a current E&P totaling $65,000, distributes land to its sole shareholder, an individual. The land has an FMV of $75,000 and an adjusted basis of $55,000. The shareholder assumes a $15,000 liability associated with the land. The shareholder will recognize

Accepted Answer

A)  $60,000 of dividend income and have a $60,000 basis in the land. 
B)  $65,000 of dividend income and have a $75,000 basis in the land. 
C)  $60,000 of dividend income and have a $75,000 basis in the land. 
D)  $65,000 of dividend income and have a $65,000 basis in the land. 
A)  $60,000 of dividend income and have a $60,000 basis in the land. 
B)  $65,000 of dividend income and have a $75,000 basis in the land. 
C)  $60,000 of dividend income and have a $75,000 basis in the land. 
D)  $65,000 of dividend income and have a $65,000 basis in the land.

Question 10

In the current year, Red Corporation has $100,000 of current and accumulated E&P. On March 2, Red Corporation distributes to Randy, a shareholder, a parcel of land (a capital asset) having a $60,000 FMV. The land has a $30,000 adjusted basis (for both tax and E&P purposes) to Red Corporation and is subject to an $8,000 mortgage, which Randy assumes. Assume a 34% marginal corporate tax rate.
a) What is the amount and character of the income Randy recognizes as a result of the distribution?
b) What is Randy's basis for the land?
c) What is the amount and character of Red Corporation's gain or loss as a result of the distribution?
d) What effect does the distribution have on Red Corporation's E&P?

Accepted Answer

a) Randy receives a taxable dividend of

Question 11

Perch Corporation has made paint and paint brushes for the past ten years. Perch Corporation is owned equally by Arnold, an individual, and Acorn Corporation. Perch Corporation has $100,000 of accumulated and current E&P. Both Arnold and Acorn Corporation have a basis in their stock of $10,000. Perch Corporation discontinues the paint brush operation and distributes assets worth $10,000 each to Arnold and Acorn Corporation in redemption of 20% of their stock. Due to the distribution, Arnold and Acorn Corporation must report:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 12

Identify which of the following statements is true.

Accepted Answer

A)  The distributing corporation's E&P must be reduced by the FMV of nontaxable stock rights distributed to shareholders. 
B)  A stock redemption can be used to withdraw some assets from a corporation prior to a sale of the business. 
C)  A shareholder can redeem part of his stock and recognize a capital gain if the corporation has only one shareholder. 
D)  All of the above are false. 
A)  The distributing corporation's E&P must be reduced by the FMV of nontaxable stock rights distributed to shareholders. 
B)  A stock redemption can be used to withdraw some assets from a corporation prior to a sale of the business. 
C)  A shareholder can redeem part of his stock and recognize a capital gain if the corporation has only one shareholder. 
D)  All of the above are false.

Question 13

Which of the following is not a reason for a stock redemption?

Accepted Answer

A)  desire by remaining shareholders to retain control 
B)  desire by shareholders to reduce the corporate tax liability 
C)  Redemption of shares is a good corporate investment. 
D)  No outside market exists for the stock. 
A)  desire by remaining shareholders to retain control 
B)  desire by shareholders to reduce the corporate tax liability 
C)  Redemption of shares is a good corporate investment. 
D)  No outside market exists for the stock.

Question 14

Bruce receives 20 stock rights in a nontaxable distribution. The stock rights have an FMV of $5,000. The common stock with respect to which the rights are issued has a basis of $4,000 and an FMV of $120,000. Bruce allows the stock rights to lapse. He can deduct a loss of

Accepted Answer

A)  $0. 
B)  $1,000. 
C)  $5,000. 
D)  none of the above 
A)  $0. 
B)  $1,000. 
C)  $5,000. 
D)  none of the above

Question 15

When appreciated property is distributed in a nonliquidating distribution, the net effect on the distributing corporation's E&P is that it is reduced by the FMV of the property distributed and increased by the gain (net of federal income taxes) recognized due to the property distribution.

Accepted Answer

A) True 
 B)False

Question 16

What are the consequences of a stock redemption to the distributing corporation?

Accepted Answer

A)  The corporation recognizes a gain or loss as if it had sold the distributed property for its FMV immediately before the redemption. 
B)  If the redemption is treated as a dividend, E&P is reduced in the same manner as for a regular dividend. 
C)  If the redemption is treated as a sale, only accumulated earnings and profits is reduced. 
D)  All of the above are correct. 
A)  The corporation recognizes a gain or loss as if it had sold the distributed property for its FMV immediately before the redemption. 
B)  If the redemption is treated as a dividend, E&P is reduced in the same manner as for a regular dividend. 
C)  If the redemption is treated as a sale, only accumulated earnings and profits is reduced. 
D)  All of the above are correct.

Question 17

Identify which of the following statements is true.

Accepted Answer

A)  Generally in a stock redemption, if the shareholder's ownership percentage is substantially reduced, the redemption is treated as a sale. 
B)  The family attribution rules of Sec. 318 are as inclusive as the family attribution rules of Sec. 267. 
C)  A 10% shareholder of a corporation is considered to own 10% of any stock that is owned by the corporation under the Sec. 318 attribution rules. 
D)  All of the above are false. 
A)  Generally in a stock redemption, if the shareholder's ownership percentage is substantially reduced, the redemption is treated as a sale. 
B)  The family attribution rules of Sec. 318 are as inclusive as the family attribution rules of Sec. 267. 
C)  A 10% shareholder of a corporation is considered to own 10% of any stock that is owned by the corporation under the Sec. 318 attribution rules. 
D)  All of the above are false.

Question 18

Which of the following requirements must be met for a redemption to be treated as substantially disproportionate?

Accepted Answer

A)  The shareholder must own less than 50% of the outstanding stock (in terms of voting power) after the redemption. 
B)  After the redemption, the shareholder must own less than 80% of his percentage ownership of voting stock prior to the redemption. 
C)  After the redemption, the shareholder must own less than 80% of his percentage ownership of common stock (voting and nonvoting) prior to the redemption. 
D)  All of the above must be met. 
A)  The shareholder must own less than 50% of the outstanding stock (in terms of voting power) after the redemption. 
B)  After the redemption, the shareholder must own less than 80% of his percentage ownership of voting stock prior to the redemption. 
C)  After the redemption, the shareholder must own less than 80% of his percentage ownership of common stock (voting and nonvoting) prior to the redemption. 
D)  All of the above must be met.

Question 19

Identify which of the following statements is true.

Accepted Answer

A)  Stock ownership attributed to a corporation from one of its shareholders cannot be attributed to another of the corporation's shareholders under the Sec. 318 attribution rules. 
B)  Under the attribution rules relating to stock redemptions, a person who has an option to purchase stock is considered to own the stock. 
C)  A stock redemption that qualifies as substantially disproportionate is a safe harbor for capital gain treatment. 
D)  All of the above are true. 
A)  Stock ownership attributed to a corporation from one of its shareholders cannot be attributed to another of the corporation's shareholders under the Sec. 318 attribution rules. 
B)  Under the attribution rules relating to stock redemptions, a person who has an option to purchase stock is considered to own the stock. 
C)  A stock redemption that qualifies as substantially disproportionate is a safe harbor for capital gain treatment. 
D)  All of the above are true.

Question 20

Digger Corporation has $50,000 of current and accumulated E&P. On March 1, Digger distributes land with a $30,000 FMV and a $17,500 adjusted basis to Dave, its sole shareholder. The land is subject to a $5,000 liability which Dave assumes.
a) What are the amount and character of the distribution?
b) What is Dave's basis in the property?
c) When does his holding period for the property begin?

Accepted Answer

a) The distribution amount is $25,000 ($

Identify which of the following statements is false.

Gould Corporation distributes land (a capital asset) worth $90,000 to Gerry, a shareholder. The land has a $30,000 basis to Gould. What is the amount and character of the gain or loss recognized by Gould?

Identify which of the following statements is true.

Wills Corporation, which has accumulated a current E&P totaling $65,000, distributes land to its sole shareholder, an individual. The land has an FMV of $75,000 and an adjusted basis of $55,000. The shareholder assumes a $15,000 liability associated with the land. The shareholder will recognize

Identify which of the following statements is true.

Which of the following is not a reason for a stock redemption?

Bruce receives 20 stock rights in a nontaxable distribution. The stock rights have an FMV of $5,000. The common stock with respect to which the rights are issued has a basis of $4,000 and an FMV of $120,000. Bruce allows the stock rights to lapse. He can deduct a loss of

When appreciated property is distributed in a nonliquidating distribution, the net effect on the distributing corporation's E&P is that it is reduced by the FMV of the property distributed and increased by the gain (net of federal income taxes) recognized due to the property distribution.

What are the consequences of a stock redemption to the distributing corporation?

Identify which of the following statements is true.

Which of the following requirements must be met for a redemption to be treated as substantially disproportionate?

Identify which of the following statements is true.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Us Taxation of Foreign-Related Transactions

Filters

Exam 4: Corporate Nonliquidating Distributions

Identify which of the following statements is false.

Gould Corporation distributes land (a capital asset) worth $90,000 to Gerry, a shareholder. The land has a $30,000 basis to Gould. What is the amount and character of the gain or loss recognized by Gould?

Identify which of the following statements is true.

Wills Corporation, which has accumulated a current E&P totaling $65,000, distributes land to its sole shareholder, an individual. The land has an FMV of $75,000 and an adjusted basis of $55,000. The shareholder assumes a $15,000 liability associated with the land. The shareholder will recognize

Identify which of the following statements is true.

Which of the following is not a reason for a stock redemption?

Bruce receives 20 stock rights in a nontaxable distribution. The stock rights have an FMV of $5,000. The common stock with respect to which the rights are issued has a basis of $4,000 and an FMV of $120,000. Bruce allows the stock rights to lapse. He can deduct a loss of

When appreciated property is distributed in a nonliquidating distribution, the net effect on the distributing corporation's E&P is that it is reduced by the FMV of the property distributed and increased by the gain (net of federal income taxes) recognized due to the property distribution.

What are the consequences of a stock redemption to the distributing corporation?

Identify which of the following statements is true.

Which of the following requirements must be met for a redemption to be treated as substantially disproportionate?

Identify which of the following statements is true.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Us Taxation of Foreign-Related Transactions

Filters