Question 1

Identify which of the following statements is false.

Accepted Answer

A) Liquidating distributions made to minority shareholders in the tax-free liquidation of a controlled subsidiary corporation are treated by the liquidating corporation in the same way as nonliquidating distributions. 
B) Sec.337(a)provides that the liquidating corporation recognizes no gain or loss on the distribution of property to the 80% distributee in a complete Sec.332 liquidation. 
C) The depreciation recapture provisions in Secs.1245 and 1250 override the Sec.337(a)nonrecognition rule if a controlled subsidiary corporation is liquidated into its parent corporation. 
D) A corporation that distributes the stock of a subsidiary may elect to treat the distribution as a sale of the subsidiary's assets. 
A) Liquidating distributions made to minority shareholders in the tax-free liquidation of a controlled subsidiary corporation are treated by the liquidating corporation in the same way as nonliquidating distributions. 
B) Sec.337(a)provides that the liquidating corporation recognizes no gain or loss on the distribution of property to the 80% distributee in a complete Sec.332 liquidation. 
C) The depreciation recapture provisions in Secs.1245 and 1250 override the Sec.337(a)nonrecognition rule if a controlled subsidiary corporation is liquidated into its parent corporation. 
D) A corporation that distributes the stock of a subsidiary may elect to treat the distribution as a sale of the subsidiary's assets.

Question 2

Identify which of the following statements is false.

Accepted Answer

A) An individual taxpayer,who is assessed an additional payment of money based on stock ownership in a corporation whose stock is redeemed in a complete liquidation,may recognize a capital loss to the extent of the additional assessment. 
B) The open transaction doctrine defers the shareholder's gain or loss from a liquidation until the assets can be valued by sale or collection. 
C) The open transaction doctrine as applied to complete corporate liquidations refers to the numerous planning alternatives available when liquidating a corporation. 
D) The IRS asserts that the open transaction doctrine should be used only in extraordinary circumstances. 
A) An individual taxpayer,who is assessed an additional payment of money based on stock ownership in a corporation whose stock is redeemed in a complete liquidation,may recognize a capital loss to the extent of the additional assessment. 
B) The open transaction doctrine defers the shareholder's gain or loss from a liquidation until the assets can be valued by sale or collection. 
C) The open transaction doctrine as applied to complete corporate liquidations refers to the numerous planning alternatives available when liquidating a corporation. 
D) The IRS asserts that the open transaction doctrine should be used only in extraordinary circumstances.

Question 3

Identify which of the following statements is true.

Accepted Answer

A) Upon liquidation,any capitalized expenditures unamortized at the time of liquidation should be deducted if they have no further value to the corporation. 
B) Shareholders who receive an installment obligation as part of their liquidating distribution ordinarily report the FMV of their obligation as part of the consideration received to calculate the amount of recognized gain or loss. 
C) A liquidating corporation treats expenses associated with selling its property as an offset against the sales proceeds. 
D) All of the above are true. 
A) Upon liquidation,any capitalized expenditures unamortized at the time of liquidation should be deducted if they have no further value to the corporation. 
B) Shareholders who receive an installment obligation as part of their liquidating distribution ordinarily report the FMV of their obligation as part of the consideration received to calculate the amount of recognized gain or loss. 
C) A liquidating corporation treats expenses associated with selling its property as an offset against the sales proceeds. 
D) All of the above are true.

Question 4

Identify which of the following statements is false.

Accepted Answer

A) A corporation must file an information return with the Internal Revenue Service within thirty days of adopting a resolution to liquidate. 
B) The adoption of a formal plan of liquidation can provide additional benefits under tax laws to the corporation and its shareholders. 
C) A plan of liquidation must be produced in writing in order to be accepted by the Internal Revenue Service. 
D) The adoption of a plan of liquidation permits a parent corporation a three-year time period to carry out the complete liquidation of its subsidiary. 
A) A corporation must file an information return with the Internal Revenue Service within thirty days of adopting a resolution to liquidate. 
B) The adoption of a formal plan of liquidation can provide additional benefits under tax laws to the corporation and its shareholders. 
C) A plan of liquidation must be produced in writing in order to be accepted by the Internal Revenue Service. 
D) The adoption of a plan of liquidation permits a parent corporation a three-year time period to carry out the complete liquidation of its subsidiary.

Question 5

Hope Corporation was liquidated four years ago.Teresa reported a $40,000 long-term capital gain due to the liquidation on her individual tax return.This year,Teresa pays $6,000 as part of the settlement of a lawsuit against Hope.Due to the $6,000 payment,Teresa recognizes a

Accepted Answer

A) $6,000 long-term capital loss. 
B) $6,000 short-term capital loss. 
C) $6,000 ordinary loss. 
D) none of the above. 
A) $6,000 long-term capital loss. 
B) $6,000 short-term capital loss. 
C) $6,000 ordinary loss. 
D) none of the above.

Question 6

Identify which of the following statements is false.

Accepted Answer

A) Minority shareholders involved in a Sec.332 subsidiary liquidation must recognize a gain or loss under the Sec.331 general liquidation rules. 
B) The parent corporation takes a basis in property received when liquidating a subsidiary corporation in a Sec.332 liquidation equal to its basis to the subsidiary corporation. 
C) Section 332 is applicable to both the parent corporation and the minority shareholders if they exist. 
D) Property received by a minority shareholder takes a basis equal to its fair market value. 
A) Minority shareholders involved in a Sec.332 subsidiary liquidation must recognize a gain or loss under the Sec.331 general liquidation rules. 
B) The parent corporation takes a basis in property received when liquidating a subsidiary corporation in a Sec.332 liquidation equal to its basis to the subsidiary corporation. 
C) Section 332 is applicable to both the parent corporation and the minority shareholders if they exist. 
D) Property received by a minority shareholder takes a basis equal to its fair market value.

Question 7

Dusty Corporation owns 90% of Palace Corporation's stock and Susan owns the remaining stock.Dusty Corporation's stock basis is $300,000 and Susan's stock basis is $20,000.Under a plan of complete liquidation,Dusty Corporation receives property with a $400,000 adjusted basis and a $540,000 FMV and Susan receives property with a $20,000 adjusted basis and a $60,000 FMV.The bases of the properties are:

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline \text { Dusty } & \text { Susan } \
\hline \$ 300,000 & \$ 20,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Dusty } & \text { Susan } \
\hline \$ 400,000 & \$ 20,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { Dusty } & \text { Susan } \
\hline \$ 400,000 & \$ 60,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { Dusty } & \text { Susan } \
\hline \$ 540,000 & \$ 60,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | } 
\hline \text { Dusty } & \text { Susan } \
\hline \$ 300,000 & \$ 20,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Dusty } & \text { Susan } \
\hline \$ 400,000 & \$ 20,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { Dusty } & \text { Susan } \
\hline \$ 400,000 & \$ 60,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { Dusty } & \text { Susan } \
\hline \$ 540,000 & \$ 60,000 \
\hline
\end{array}$$

Question 8

Key Corporation distributes a patent with an indeterminable value to Gary as part of a plan of complete liquidation.In addition,Gary receives $40,000 cash and land with a $70,000 FMV and a $30,000 adjusted basis.Gary's basis in the Key stock (a capital asset)surrendered is $120,000.If Gary relies on the open transaction doctrine,at the liquidation date he must recognize a

Accepted Answer

A) $0 gain. 
B) $10,000 capital loss. 
C) $30,000 capital loss. 
D) $70,000 capital gain. 
A) $0 gain. 
B) $10,000 capital loss. 
C) $30,000 capital loss. 
D) $70,000 capital gain.

Question 9

Greg,a cash method of accounting taxpayer,owns 100 shares of Parker Corporation stock with a basis of $20,000.Greg receives two liquidating distributions of $8,000 on March 3 of last year,and $8,000 on August 8 of this year.The amount of the second distribution is not known until June 15 of this year.Greg recognizes

Accepted Answer

A) a gain of $8,000 last year and a loss of $12,000 this year. 
B) a loss of $2,000 last year and a loss of $2,000 this year. 
C) no loss last year and a $4,000 loss this year. 
D) none of the above. 
A) a gain of $8,000 last year and a loss of $12,000 this year. 
B) a loss of $2,000 last year and a loss of $2,000 this year. 
C) no loss last year and a $4,000 loss this year. 
D) none of the above.

Question 10

Identify which of the following statements is true.

Accepted Answer

A) A loss recognized by a shareholder upon complete liquidation of a corporation may not qualify for ordinary loss treatment if the stock is Sec.1244 stock. 
B) The loss that is recognized by an individual shareholder on the liquidation of a corporation is a capital loss,up to certain limits,if the stock is Sec.1244 stock. 
C) The loss recognized by a corporate shareholder on the worthlessness of the controlled subsidiary's stock is an ordinary loss. 
D) All of the above are false. 
A) A loss recognized by a shareholder upon complete liquidation of a corporation may not qualify for ordinary loss treatment if the stock is Sec.1244 stock. 
B) The loss that is recognized by an individual shareholder on the liquidation of a corporation is a capital loss,up to certain limits,if the stock is Sec.1244 stock. 
C) The loss recognized by a corporate shareholder on the worthlessness of the controlled subsidiary's stock is an ordinary loss. 
D) All of the above are false.

Question 11

What event determines when a cash or accrual method of accounting taxpayer reports a liquidating distribution?

Accepted Answer

A shareholder who uses the accrual metho

Question 12

Riverwalk Corporation is liquidated,with Juan receiving $5,000 in money and other property having a $6,000 FMV.Juan's basis in his Riverwalk stock is $8,000.Upon liquidation,Juan must recognize a gain of

Accepted Answer

A) 0) 
B) $2,000. 
C) $3,000. 
D) $11,000. 
A) 0) 
B) $2,000. 
C) $3,000. 
D) $11,000.

Question 13

Santa Fe Corporation adopts a plan of liquidation late in the current tax year in which it expects to earn $100,000 profits from its operating activities.Santa Fe's operating activities are discontinued before the end of the year.Pursuant to the liquidation,it distributes assets,which result in the recognition of $30,000 of ordinary losses.Santa Fe also distributes assets that have appreciated in value,which results in the recognition of $30,000 of ordinary gains.Generally,Santa Fe Corporation should distribute

Accepted Answer

A) the $30,000 of ordinary loss property in the current year and the $30,000 of ordinary gain property next year. 
B) both the ordinary loss and gain properties this year. 
C) both the ordinary losses and gains properties next year. 
D) the $30,000 of ordinary gain property in the current year and the $30,000 of ordinary loss property next year. 
A) the $30,000 of ordinary loss property in the current year and the $30,000 of ordinary gain property next year. 
B) both the ordinary loss and gain properties this year. 
C) both the ordinary losses and gains properties next year. 
D) the $30,000 of ordinary gain property in the current year and the $30,000 of ordinary loss property next year.

Question 14

In general,a noncorporate shareholder that receives a distribution in complete liquidation of the liquidating corporation recognizes his or her entire realized gain as a capital gain.

Accepted Answer

A) True 
 B)False

Question 15

Identify which of the following statements is true.

Accepted Answer

A) The Sec.332 nonrecognition rules apply to the parent corporation when a subsidiary corporation transfers property to the parent corporation in payment of the subsidiary's debt obligation. 
B) A subsidiary corporation is prevented from recognizing gain or loss when transferring property to its parent corporation in satisfaction of an indebtedness it owes to the parent corporation as part of its complete liquidation. 
C) Nonrecognition of gain or loss rules apply to a subsidiary corporation when,pursuant to its complete liquidation,the subsidiary transfers property to a third-party creditor. 
D) All of the above are false. 
A) The Sec.332 nonrecognition rules apply to the parent corporation when a subsidiary corporation transfers property to the parent corporation in payment of the subsidiary's debt obligation. 
B) A subsidiary corporation is prevented from recognizing gain or loss when transferring property to its parent corporation in satisfaction of an indebtedness it owes to the parent corporation as part of its complete liquidation. 
C) Nonrecognition of gain or loss rules apply to a subsidiary corporation when,pursuant to its complete liquidation,the subsidiary transfers property to a third-party creditor. 
D) All of the above are false.

Question 16

Identify which of the following statements is true.

Accepted Answer

A) A parent corporation cannot liquidate a subsidiary corporation (having but a single class of stock)and avoid recognizing its realized gain unless the parent corporation owns at least 80% of the subsidiary's stock. 
B) The liquidation of a subsidiary corporation must be completed within one tax year to receive nonrecognition treatment. 
C) The provisions permitting a tax-free liquidation of a subsidiary corporation apply to both corporate and noncorporate shareholders of the subsidiary. 
D) All of the above are false. 
A) A parent corporation cannot liquidate a subsidiary corporation (having but a single class of stock)and avoid recognizing its realized gain unless the parent corporation owns at least 80% of the subsidiary's stock. 
B) The liquidation of a subsidiary corporation must be completed within one tax year to receive nonrecognition treatment. 
C) The provisions permitting a tax-free liquidation of a subsidiary corporation apply to both corporate and noncorporate shareholders of the subsidiary. 
D) All of the above are false.

Question 17

Prime Corporation liquidates its 85%-owned subsidiary Bass Corporation under the provisions of Secs.332 and 337.Bass Corporation distributes land to its minority shareholder,John,who owns a 15% interest.The property received by John has a $55,000 FMV.The land was used in the Bass Corporation's business and has a $65,000 adjusted basis and is subject to a $10,000 liability,which is assumed by John.John's basis in his stock is $25,000.What gain or loss will John and Bass Corporation recognize on the distribution of the land?

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline \text { John } & \text { Bass } \
\hline \$ 20,000 \text { gain } & \$ 0 \
\hline
\end{array}$$ 
B)  $$\begin{array} {| l | l | } 
\hline\text { John } & \text { Bass } \
\hline \$ 20,000 \text { gain } & \$ 10,000 \text { loss } \
\hline
\end{array}$$ 
C)  $$\begin{array} {| l | l | } 
\hline\text { John } & \text { Bass } \
\hline \$ 30,000 \text { gain } & \$ 0 \
\hline
\end{array}$$ 
D)  $$\begin{array} {| l | l | } 
\hline\text { John } & \text { Bass } \
\hline \$ 30,000 \text { gain } & \$ 10,000 \text { loss } \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | } 
\hline \text { John } & \text { Bass } \
\hline \$ 20,000 \text { gain } & \$ 0 \
\hline
\end{array}$$ 
B)  $$\begin{array} {| l | l | } 
\hline\text { John } & \text { Bass } \
\hline \$ 20,000 \text { gain } & \$ 10,000 \text { loss } \
\hline
\end{array}$$ 
C)  $$\begin{array} {| l | l | } 
\hline\text { John } & \text { Bass } \
\hline \$ 30,000 \text { gain } & \$ 0 \
\hline
\end{array}$$ 
D)  $$\begin{array} {| l | l | } 
\hline\text { John } & \text { Bass } \
\hline \$ 30,000 \text { gain } & \$ 10,000 \text { loss } \
\hline
\end{array}$$

Question 18

A subsidiary recognizes no gain or loss on a distribution to a parent corporation owning the majority of the subsidiary's stock in a complete liquidation.

Accepted Answer

A) True 
 B)False

Question 19

Lake City Corporation owns all the stock in Columbia Corporation.Pursuant to a plan of complete liquidation,Columbia distributes land having a $500,000 FMV and a $200,000 basis to Lake City.Columbia's gain with respect to the distribution will be

Accepted Answer

A) no gain recognized. 
B) $200,000. 
C) $300,000. 
D) $500,000. 
A) no gain recognized. 
B) $200,000. 
C) $300,000. 
D) $500,000.

Question 20

Liquidation and dissolution have the same legal meaning.

Accepted Answer

A) True 
 B)False

Exam 6: Corporate Liquidating Distributions

Identify which of the following statements is false.

Identify which of the following statements is false.

Identify which of the following statements is true.

Identify which of the following statements is false.

Hope Corporation was liquidated four years ago.Teresa reported a $40,000 long-term capital gain due to the liquidation on her individual tax return.This year,Teresa pays $6,000 as part of the settlement of a lawsuit against Hope.Due to the $6,000 payment,Teresa recognizes a

Identify which of the following statements is false.

Identify which of the following statements is true.

What event determines when a cash or accrual method of accounting taxpayer reports a liquidating distribution?

Riverwalk Corporation is liquidated,with Juan receiving $5,000 in money and other property having a $6,000 FMV.Juan's basis in his Riverwalk stock is $8,000.Upon liquidation,Juan must recognize a gain of

In general,a noncorporate shareholder that receives a distribution in complete liquidation of the liquidating corporation recognizes his or her entire realized gain as a capital gain.

Identify which of the following statements is true.

Identify which of the following statements is true.

A subsidiary recognizes no gain or loss on a distribution to a parent corporation owning the majority of the subsidiary's stock in a complete liquidation.

Lake City Corporation owns all the stock in Columbia Corporation.Pursuant to a plan of complete liquidation,Columbia distributes land having a $500,000 FMV and a $200,000 basis to Lake City.Columbia's gain with respect to the distribution will be

Liquidation and dissolution have the same legal meaning.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

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

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Business Expenses and Deferred Compensation

Itemized Deductions

Losses and Bad Debts

Depreciation,cost Recovery,amortization,and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods,tax Credits,and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

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