Exam 19: Corporate Formation,reorganization,and Liquidation

The shareholders in the target corporation always receive a tax basis in the stock received from the acquirer equal to the stock's fair market value.

Jalen transferred his 10 percent interest to Wolverine Company as part of a complete liquidation of the company.In the exchange,he received land with a fair market value of $100,000.Jalen's basis in the Wolverine stock was $50,000.The land had a basis to Wolverine Company of $80,000.What amount of gain does Jalen recognize in the exchange and what is his basis in the land he receives?

Harry and Sally formed Empire Corporation on January 2.Harry contributed cash of $500,000 in return for 50 percent of the corporation's stock.Sally contributed a building and land with the following fair market values and adjusted basis in return for 50 percent of the corporation's stock. To equalize the exchange,Empire Corporation paid Sally $100,000 in addition to her stock. a.What amount of gain or loss does Sally realize on the formation of the corporation? b.What amount of gain or loss,if any,does she recognize? c.What is Sally's tax basis in the stock she receives in return for her contribution of property to the corporation? d.What adjusted basis does Empire Corporation take in the land and building received from Sally?

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?

Type A reorganizations involve the transfer of assets of the target corporation via a merger or consolidation.

Don and Marie formed Paper Lilies Corporation on January 2.Don contributed cash of $400,000 in return for 50 percent of the corporation's stock.Marie contributed a building and land with the following fair market values and tax-adjusted bases in return for 50 percent of the corporation's stock. To equalize the exchange,Paper Lilies Corporation paid Marie $50,000 in addition to her stock. a.What amount of gain or loss does Marie realize on the formation of the corporation? b.What amount of gain or loss,if any,does she recognize? c.What is Marie's tax basis in the stock she receives in return for her contribution of property to the corporation? d.What adjusted basis does Paper Lilies Corporation take in the land and building received from Marie?

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

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

Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?

Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $350 in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $150 on the property transferred.What is the amount realized by Roberta in the exchange?

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 does April recognize in the exchange and what is her basis in the March stock she receives?

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

Han transferred land to his corporation in a §351 transaction.Han had held the land for two years prior to the transfer.The corporation will tack Han's holding period for the land.

A stock-for-stock Type B reorganization will be tax-deferred to a target corporation shareholder as long as at least 80 percent of the consideration received is in the form of stock of the acquirer.

In December 2019,Jill incurred a $50,000 loss on the sale of Crown Corporation stock that she purchased in 2010.The stock satisfied all of the §1244 stock requirements at the time of issue.Jill is married to Jack and together they file a joint tax return.How much of the loss can Jack and Jill deduct in 2019,assuming they do not have capital gains in the current or prior years,and what is the character of the loss?

The tax basis of property received by a noncorporate shareholder in a complete liquidation will be the property's fair market value.

Simon transferred 100 percent of his stock in Idol Company to Bobcat Corporation in a Type A merger.In exchange he received stock in Bobcat with a fair market value of $2,000,000 plus $500,000 in cash.Simon's tax basis in the Idol stock was $1,500,000.What amount of gain does Simon recognize in the exchange and what is his basis in the Bobcat stock he receives?

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

Which of the following statements best describes the requirement that must be met in a tax-deferred Type B stock-for-stock reorganization?

Mike and Michelle decided to liquidate their jointly owned corporation,Pennsylvania Corporation.After liquidating 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 Pennsylvania recognize in the complete liquidation?