Question 1

A liquidation must be reported to the Internal Revenue Service on Form 966

Accepted Answer

A) within 60 days of the adoption of a plan of liquidation. 
B) that is filed with the national IRS office. 
C) whether the shareholders' realized gain is recognized or not. 
D) by the shareholders. 
A) within 60 days of the adoption of a plan of liquidation. 
B) that is filed with the national IRS office. 
C) whether the shareholders' realized gain is recognized or not. 
D) by the shareholders. C

Question 2

A plan of liquidation must be reduced to writing in order to be accepted by the Internal Revenue Service.

Accepted Answer

A) True 
 B)False  False

Question 3

Liquidation rules generally are applied the same to the following organizations except for

Accepted Answer

A) subsidiary corporations (80% controlled). 
B) C corporations. 
C) S corporations. 
D) subsidiary corporations (less than 80% controlled). 
A) subsidiary corporations (80% controlled). 
B) C corporations. 
C) S corporations. 
D) subsidiary corporations (less than 80% controlled). A

Question 4

Parent Corporation for ten years has owned all of the stock of Subsidiary Corporation,which manufactures widgets.Parent's basis in Subsidiary's stock is $500,000.Subsidiary Corporation is insolvent and has no assets to redeem any of the stock that Parent Corporation owns when it liquidates.Nearly all of Subsidiary's gross income during the past five years has come from nonpassive activities.Parent can recognize

Accepted Answer

A) a $500,000 short-term capital loss. 
B) a $500,000 long-term capital loss. 
C) a $500,000 ordinary loss. 
D) a $500,000 bad debt deduction. 
A) a $500,000 short-term capital loss. 
B) a $500,000 long-term capital loss. 
C) a $500,000 ordinary loss. 
D) a $500,000 bad debt deduction.

Question 5

Barnett Corporation owns an office building that cost $900,000.Barnett has taken $600,000 of depreciation on the building.The property is subject to a $600,000 mortgage.The office building has a current FMV of $400,000.Barnett Corporation is liquidated and the office building is distributed to a single individual shareholder who assumes the mortgage.Barnett Corporation must recognize

Accepted Answer

A) no gain or loss. 
B) a $100,000 gain. 
C) a $300,000 gain. 
D) none of the above 
A) no gain or loss. 
B) a $100,000 gain. 
C) a $300,000 gain. 
D) none of the above

Question 6

Barbara owns 100 shares of Bond Corporation stock with a basis of $40,000.Barbara receives two liquidating distributions,including $16,000 paid last year and $20,000 paid in the current year.An additional distribution of an undetermined amount is expected next year.On last year's tax return,Barbara can recognize a loss of

Accepted Answer

A) $0. 
B) $1,000. 
C) $4,000. 
D) $14,000. 
A) $0. 
B) $1,000. 
C) $4,000. 
D) $14,000.

Question 7

Parent Corporation owns all of Subsidiary Corporation's stock.In addition,Parent Corporation owns $100,000 (face amount and basis)of Subsidiary Corporation's bonds.When Subsidiary Corporation is completely liquidated,it distributes property with a $70,000 adjusted basis and a $100,000 FMV to Parent Corporation in redemption of the Subsidiary Corporation bonds.Following the liquidation,Parent Corporation will have a basis in the Subsidiary Corporation property received for the bonds of

Accepted Answer

A) $0. 
B) $70,000. 
C) $100,000. 
D) none of the above 
A) $0. 
B) $70,000. 
C) $100,000. 
D) none of the above

Question 8

If a liquidating subsidiary corporation primarily has loss property to distribute,the parent corporation should

Accepted Answer

A) follow Sec.332 rules. 
B) avoid Sec.332 rules. 
C) follow Sec.332 rules but avoid Sec.337. 
D) none of the above. 
A) follow Sec.332 rules. 
B) avoid Sec.332 rules. 
C) follow Sec.332 rules but avoid Sec.337. 
D) none of the above.

Question 9

The general rule for tax attributes of liquidating corporations is

Accepted Answer

A) they disappear when the liquidation is complete. 
B) they carry over for five years. 
C) they disappear only for controlled subsidiary corporations. 
D) they carry over for an indefinite period of time. 
A) they disappear when the liquidation is complete. 
B) they carry over for five years. 
C) they disappear only for controlled subsidiary corporations. 
D) they carry over for an indefinite period of time.

Question 10

Property received in a corporate liquidation by a noncorporate shareholder has

Accepted Answer

A) a basis equal to its basis on the liquidating corporation's books increased by any gain recognized by the shareholder upon receipt of the property.Its holding period includes the holding period of the shareholder's stock. 
B) a basis equal to its basis on the liquidating corporation's books increased by any gain recognized by the shareholder upon receipt of the property.Its holding period commences on the day after the distribution date. 
C) a basis equal to its FMV reduced by any liabilities assumed by the shareholder.Its holding period commences on the day after the distribution date. 
D) a basis equal to its FMV.Its holding period commences on the day after the distribution date. 
A) a basis equal to its basis on the liquidating corporation's books increased by any gain recognized by the shareholder upon receipt of the property.Its holding period includes the holding period of the shareholder's stock. 
B) a basis equal to its basis on the liquidating corporation's books increased by any gain recognized by the shareholder upon receipt of the property.Its holding period commences on the day after the distribution date. 
C) a basis equal to its FMV reduced by any liabilities assumed by the shareholder.Its holding period commences on the day after the distribution date. 
D) a basis equal to its FMV.Its holding period commences on the day after the distribution date.

Question 11

Identify which of the following statements is true.

Accepted Answer

A) With limited exceptions,a loss can be recognized by a liquidating corporation when it makes a liquidating distribution of property that has declined in value. 
B) When computing the corporate-level gain on a liquidating distribution,the FMV of the property cannot exceed the liability assumed or acquired by the shareholder. 
C) The FMV of property distributed by a liquidating corporation can be less than the amount of the liability assumed or acquired by the shareholder. 
D) All of the above are false. 
A) With limited exceptions,a loss can be recognized by a liquidating corporation when it makes a liquidating distribution of property that has declined in value. 
B) When computing the corporate-level gain on a liquidating distribution,the FMV of the property cannot exceed the liability assumed or acquired by the shareholder. 
C) The FMV of property distributed by a liquidating corporation can be less than the amount of the liability assumed or acquired by the shareholder. 
D) All of the above are false.

Question 12

Section 336 prevents recognition of a loss when making a pro rata distribution of property to a related person.

Accepted Answer

A) True 
 B)False

Question 13

Texas Corporation is undergoing a complete liquidation and distributes land to Robert,one of its shareholders,in exchange for all of Robert's stock.The land has a basis of $300,000 and an FMV of $400,000 on Texas Corporation's books and is subject to a $325,000 liability.Robert assumes the liability on the property.Robert's basis in his Texas Corporation stock is $100,000.What is the amount of gain or loss recognized by Robert on the distribution?

Accepted Answer

A) $175,000 gain 
B) $25,000 gain 
C) $25,000 loss 
D) No gain or loss is recognized. 
A) $175,000 gain 
B) $25,000 gain 
C) $25,000 loss 
D) No gain or loss is recognized.

Question 14

How is the gain/loss calculated if a shareholder has acquired stock at different times and at varying prices?

Accepted Answer

A shareholder who has purchased blocks o

Question 15

The adjusted basis of property received in a complete liquidation is its fair market value on the distribution date.

Accepted Answer

A) True 
 B)False

Question 16

Under what circumstances does a liquidating corporation not recognize a gain or loss when making a distribution?

Accepted Answer

A liquidating corpor

Question 17

Identify which of the following statements is true.

Accepted Answer

A) A liquidating distribution of property other than a disqualified property that is made ratably to all shareholders (based on their stockholdings)will permit the recognition of loss on the portion of the distribution that is made to a related person. 
B) A subsidiary corporation can recognize losses on distributions to either the parent corporation or minority shareholders in a Sec.332 liquidation. 
C) Section 336 prevents recognition of a loss when making a pro rata distribution of property to a related person. 
D) All of the above are false. 
A) A liquidating distribution of property other than a disqualified property that is made ratably to all shareholders (based on their stockholdings)will permit the recognition of loss on the portion of the distribution that is made to a related person. 
B) A subsidiary corporation can recognize losses on distributions to either the parent corporation or minority shareholders in a Sec.332 liquidation. 
C) Section 336 prevents recognition of a loss when making a pro rata distribution of property to a related person. 
D) All of the above are false.

Question 18

Moya Corporation adopted a plan of liquidation last year.All but a nominal amount of Moya's assets are distributed to its shareholders within the year.Which of the following statements is not true?

Accepted Answer

A) The liquidation of Moya Corporation means the corporation has undergone dissolution. 
B) Moya Corporation retains its state charter. 
C) Moya Corporation's existence is preserved. 
D) Moya Corporation has been liquidated for tax purposes. 
A) The liquidation of Moya Corporation means the corporation has undergone dissolution. 
B) Moya Corporation retains its state charter. 
C) Moya Corporation's existence is preserved. 
D) Moya Corporation has been liquidated for tax purposes.

Question 19

Robot Corporation is liquidated,with Marty receiving property having an adjusted basis of $60,000 and an FMV of $90,000.The property is subject to an $80,000 mortgage,which Marty assumes.Marty's basis in the Robot stock surrendered is $50,000.Marty must recognize

Accepted Answer

A) a $40,000 loss. 
B) no gain or loss. 
C) a $60,000 gain. 
D) none of the above. 
A) a $40,000 loss. 
B) no gain or loss. 
C) a $60,000 gain. 
D) none of the above.

Question 20

Parent Corporation owns 70% of Sam Corporation's single class of stock.This year,Parent Corporation purchases for cash the remaining 30% of Sam Corporation's stock from four individual investors pursuant to a tender offer.A plan of liquidation is approved by Sam Corporation's shareholders during the last month of this year,and Sam Corporation's assets are distributed by year-end to Parent Corporation in exchange for all of Sam's outstanding stock.Parent Corporation should

Accepted Answer

A) not recognize any gains and losses on the redemption. 
B) recognize gains and losses on the redemption. 
C) recognize gains but not losses on the redemption. 
D) recognize losses but not gains on the redemption. 
A) not recognize any gains and losses on the redemption. 
B) recognize gains and losses on the redemption. 
C) recognize gains but not losses on the redemption. 
D) recognize losses but not gains on the redemption.

Exam 6: Corporate Liquidating Distributions

A liquidation must be reported to the Internal Revenue Service on Form 966

A plan of liquidation must be reduced to writing in order to be accepted by the Internal Revenue Service.

Liquidation rules generally are applied the same to the following organizations except for

If a liquidating subsidiary corporation primarily has loss property to distribute,the parent corporation should

The general rule for tax attributes of liquidating corporations is

Property received in a corporate liquidation by a noncorporate shareholder has

Identify which of the following statements is true.

Section 336 prevents recognition of a loss when making a pro rata distribution of property to a related person.

How is the gain/loss calculated if a shareholder has acquired stock at different times and at varying prices?

The adjusted basis of property received in a complete liquidation is its fair market value on the distribution date.

Under what circumstances does a liquidating corporation not recognize a gain or loss when making a distribution?

Identify which of the following statements is true.

Moya Corporation adopted a plan of liquidation last year.All but a nominal amount of Moya's assets are distributed to its shareholders within the year.Which of the following statements is not true?

Robot Corporation is liquidated,with Marty receiving property having an adjusted basis of $60,000 and an FMV of $90,000.The property is subject to an $80,000 mortgage,which Marty assumes.Marty's basis in the Robot stock surrendered is $50,000.Marty must recognize

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