Question 1

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

Question 2

John and June, husband and wife, have owned Ruby Corporation for a number of years. Their basis in the Ruby stock, which they own jointly, is $200,000. The Ruby stock is Sec. 1244 stock. Ruby Corporation liquidates, and John and June receive the following from the corporation: accounts receivable, $30,000 FMV; a car, $21,000 FMV; office furniture, $11,000 FMV; and $25,000 in cash. What is the amount and character of their gain or loss?

Accepted Answer

$30,000 + $21,000 + $11,000 + $25,000 =

Question 3

Sandy, a cash method of accounting taxpayer, has a basis of $46,000 in her 500 shares of Newt Corp stock. She receives the following distributions as part of Newt's plan of liquidation. $\begin{array}{|l|l|}
\hline \text { March 31, 2017 } & \$ 10,000 \
\hline \text { July 15, 2017 } & 10,000 \
\hline \text { Nowember 15, 2017 } & 10,000 \
\hline \text { January 15, 2018 } & 10,000 \
\hline
\end{array}$ The amount of the final distribution is not known on December 31, 2017. What are the tax conseque the distributions?

Accepted Answer

A)  Sandy will recognize the entire loss in 2018. 
B)  Sandy will recognize a loss of $4,500 in 2017 and a $1,500 loss in 2018. 
C)  Sandy will recognize the entire loss in 2017. 
D)  None of the above is correct. 
A)  Sandy will recognize the entire loss in 2018. 
B)  Sandy will recognize a loss of $4,500 in 2017 and a $1,500 loss in 2018. 
C)  Sandy will recognize the entire loss in 2017. 
D)  None of the above is correct.

Question 4

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

Accepted Answer

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

Question 5

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 6

Liquidating expenses are generally deducted as ordinary and necessary business expenses.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

What is the IRS's position regarding whether a liquidating transaction will be considered open or closed?

Accepted Answer

The IRS's position is that the open tran

Question 9

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

Question 10

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 11

A plan of liquidation

Accepted Answer

A)  must be completed in one year. 
B)  must be a formal plan. 
C)  details the steps to be undertaken in carrying out the liquidation. 
D)  must be written. 
A)  must be completed in one year. 
B)  must be a formal plan. 
C)  details the steps to be undertaken in carrying out the liquidation. 
D)  must be written.

Question 12

Identify which of the following statements is true.

Accepted Answer

A)  Properties acquired by a liquidating corporation as a capital contribution occurring within three years of the adoption of a plan of liquidation are generally presumed to have a tax avoidance motive. 
B)  The loss realized on the sale of a property is disallowed when such property was received by a corporation as a contribution of capital in a transaction having as its principal purpose the recognition of loss pursuant to the corporation's subsequent liquidation later in the same taxable year. 
C)  Losses claimed in a tax return filed before the adoption of the plan of liquidation are not restricted by Sec. 336(d)(2). 
D)  All of the above are false. 
A)  Properties acquired by a liquidating corporation as a capital contribution occurring within three years of the adoption of a plan of liquidation are generally presumed to have a tax avoidance motive. 
B)  The loss realized on the sale of a property is disallowed when such property was received by a corporation as a contribution of capital in a transaction having as its principal purpose the recognition of loss pursuant to the corporation's subsequent liquidation later in the same taxable year. 
C)  Losses claimed in a tax return filed before the adoption of the plan of liquidation are not restricted by Sec. 336(d)(2). 
D)  All of the above are false.

Question 13

Albert receives a liquidating distribution from Glidden Corporation as part of a complete redemption of its stock. Albert receives cash of $5,000 and other property with an adjusted basis of $6,000 and an FMV of $10,000. Albert's basis in the Glidden stock surrendered is $8,000. How much gain does he recognize?

Accepted Answer

The answer of Albert receives a liquidating distribution from Glidden...

Question 14

What basis do both the parent and minority shareholders take in the assets received in a Sec. 332 liquidation?

Accepted Answer

Since the parent recognizes no gain or l

Question 15

The stock of Cooper Corporation is 70% owned by Carole and 30% owned by Carole's brother, Chris. During 2017, Chris transferred property (basis of $100,000 and FMV of $120,000) as a contribution to the capital of Cooper. During February 2018, Cooper adopted a plan of liquidation and subsequently made a pro rata distribution of the property back to Carole and Chris. At the time of the liquidation, the property had an FMV of $80,000. What amount of loss can be recognized by Cooper on the distribution of property?

Accepted Answer

A)  $12,000 
B)  $20,000 
C)  $6,000 
D)  $0 
A)  $12,000 
B)  $20,000 
C)  $6,000 
D)  $0

Question 16

Mary receives a liquidating distribution from Snell Corporation as part of a redemption of all of its stock. Mary's basis in the Snell stock is $10,000. In exchange for her stock, Mary receives property with an $8,000 basis and a
$15,000 FMV that is subject to a $3,000 mortgage. Mary also receives cash of $5,000. What is Mary's recognized gain?

Accepted Answer

The answer of Mary receives a liquidating distribution from Snell...

Question 17

Dexer Corporation is owned 70% by Amy and 30% by Brad. Dexer Corporation owns Eagle Corporation stock with a $50,000 adjusted basis and a $30,000 FMV. The stock is not disqualified property. As part of a complete liquidation, the Eagle Corporation stock is distributed to Amy. Amy's basis in her Dexer stock is $40,000. Dexer Corporation will recognize

Accepted Answer

A)  no loss. 
B)  a $20,000 loss. 
C)  a $10,000 loss. 
D)  none of the above 
A)  no loss. 
B)  a $20,000 loss. 
C)  a $10,000 loss. 
D)  none of the above

Question 18

When a corporation liquidates, it performs three activities. What is the general order of these activities in a plan of liquidation?

Accepted Answer

A)  pay debts, distribute property to shareholders, and wind up its affairs 
B)  wind up its affairs, pay debts, and distribute property to shareholders 
C)  wind up its affairs, distribute property to shareholders, pay debts 
D)  pay debts, wind up its affairs, and distribute property to shareholders 
A)  pay debts, distribute property to shareholders, and wind up its affairs 
B)  wind up its affairs, pay debts, and distribute property to shareholders 
C)  wind up its affairs, distribute property to shareholders, pay debts 
D)  pay debts, wind up its affairs, and distribute property to shareholders

Question 19

Charlene and Dennis each own 50% of Brewster Corporation and have owned it for five years. The adjusted bases of their Brewster stock are $80,000 and $40,000 respectively. Brewster Corporation liquidates and distributes $60,000 to Charlene in exchange for her stock. It distributes a parcel of land with a $140,000 FMV which is subject to a $90,000 mortgage to Dennis in exchange for his stock. Dennis assumes the mortgage and als receives $10,000 in cash.
a) What is the character and amount of each shareholder's gain or loss?
b) What is each shareholder's basis in the property received in the liquidation?

Accepted Answer

a) Charlene: $60,000 - $80,000 = $20,000

Question 20

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

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

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

Liquidating expenses are generally deducted as ordinary and necessary business expenses.

What is the IRS's position regarding whether a liquidating transaction will be considered open or closed?

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

A plan of liquidation

Identify which of the following statements is true.

What basis do both the parent and minority shareholders take in the assets received in a Sec. 332 liquidation?

When a corporation liquidates, it performs three activities. What is the general order of these activities in a plan of 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

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

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Exam 6: Corporate Liquidating Distributions

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

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

Liquidating expenses are generally deducted as ordinary and necessary business expenses.

What is the IRS's position regarding whether a liquidating transaction will be considered open or closed?

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

A plan of liquidation

Identify which of the following statements is true.

What basis do both the parent and minority shareholders take in the assets received in a Sec. 332 liquidation?

When a corporation liquidates, it performs three activities. What is the general order of these activities in a plan of 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

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

Filters