Exam 6: Corporations: Redemptions and Liquidations

Finch Corporation distributes property (basis of $225,000, fair market value of $300,000) to a shareholder in a distribution that is a qualifying stock redemption. The property is subject to a liability of $160,000, which the shareholder assumes. The basis of the property to the shareholder is:

Purple Corporation has two equal shareholders, Joshua and Ellie, who are father and daughter. One year ago, the two shareholders transferred properties to Purple in a § 351 exchange. Joshua transferred land (basis of $600,000, fair market value of $450,000) and securities (basis of $70,000, fair market value of $250,000), while Ellie transferred equipment (basis of $420,000, fair market value of $700,000). In the current year, Purple Corporation adopts a plan of liquidation, sells all of its assets, and distributes the proceeds pro rata to Joshua and Ellie. The only loss realized upon disposition of the properties was with respect to the land that had decreased in value to $310,000 and was sold for this amount. Purple never used the land for any business purpose during the time it was owned by the corporation. What amount of loss can Purple Corporation recognize on the sale of the land?

If a liquidation qualifies under § 332, any minority shareholder will recognize gain or loss equal to the difference between the fair market value of assets received and the basis of the shareholder's stock.

In determining whether a distribution qualifies as a § 303 redemption to pay death taxes, the stock attribution rules must be applied.

A shareholder's basis in property acquired in a stock redemption is the property's fair market value as of the date of redemption.

A subsidiary is liquidated pursuant to § 332. The parent has held 100% of the stock in the subsidiary for the past ten years. The subsidiary has a net operating loss carryover of $400,000. The net operating loss does not carry over to the parent.

Under what circumstances will preferred stock received in a nontaxable stock dividend not generate ordinary income, under § 306, upon its disposition?

During the current year, Goldfinch Corporation purchased 100% of the stock of Dove Corporation and made a qualified election under § 338. Which of the following statements is incorrect with respect to the § 338 election?