Exam 6: Corporations: Redemptions and Liquidations

As a result of a redemption, a shareholder's interest direct and indirect) in the corporation decreased from 80% to 55%. The redemption qualifies for sale or exchange treatment as a disproportionate redemption.

Copper Corporation E & P of $1.2 million) distributes land basis of $410,000, fair market value of $650,000) to Lauren, a shareholder, to carry out a qualifying stock redemption. Lauren had a basis of $90,000 in the shares redeemed. Which of the following is an incorrect statement regarding the redemption?

Seven years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 2,000 shares of Blue Corporation in a transaction that qualified under § 351. The assets had a tax basis to her of $400,000 and a fair market value of $700,000 on the date of the transfer. In the current year, Blue Corporation E & P of $1 million) redeems 600 shares from Eleanor for $260,000 in a transaction that does not qualify for sale or exchange treatment. With respect to the redemption, Eleanor will have a:

Tan Corporation paid interest expense on a debt incurred in financing a redemption of its stock. The interest expense is not deductible since it was incurred in connection with a stock redemption.

Six years ago, both Ronald and his mom owned 50% of the stock of Bronze Corporation. At such time, Bronze redeemed all of Ronald's stock. For the redemption year, Ronald filed the agreement required of the family attribution waiver and reported the transaction as a complete termination redemption i.e., sale or exchange). In the current year, the mom passed away and willed her entire stock interest in Bronze to Ronald. The inheritance of Bronze stock by Ronald is a prohibited interest for purposes of the family attribution waiver.

The stock in Toucan Corporation is held equally by two brothers. Four years ago, the shareholders transferred property basis of $200,000, fair market value of $220,000) to Toucan Corporation as a contribution to capital. In the current year and pursuant to a complete liquidation of Toucan, the property is distributed proportionately to the brothers. At the time of the distribution, the property had a fair market value of $40,000. What amount of loss will Toucan Corporation recognize on the distribution of the property?

Which of the following statements is correct with respect to the § 338 election?

Which of the following statements is incorrect regarding tax planning opportunities for qualifying stock redemptions?

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

The stock of Loon Corporation is held as follows: 85% by Duck Corporation and 15% by Gerald, an individual. Loon Corporation is liquidated in December of the current year pursuant to a plan adopted earlier in the year. Loon Corporation distributes land with a basis of $350,000 and fair market value of $390,000 to Gerald in liquidation of his stock interest. Gerald had a basis of $200,000 in his Loon stock. How much gain will Loon Corporation recognize in this liquidating distribution?

Both Lupe and Rodrigo, father and son, own 50% of the stock outstanding of Heron Corporation E & P of $400,000). During the current year, Heron redeems all of Lupe's shares for $250,000. The transaction cannot qualify as a complete termination redemption if:

Kite Corporation has 1,000 shares of stock outstanding. Kent owns 300 shares, Kent's father owns 200 shares, Kent's daughter owns 100 shares, and Kent's aunt owns 200 shares. Plover Corporation owns the other 200 shares in Kite Corporation. Kent owns 75% of the stock in Plover Corporation. Applying the § 318 stock attribution rules, how many shares does Kent own in Kite Corporation?

On March 15, 2018, Blue Corporation purchased 10% of the Gold Corporation stock outstanding. Blue Corporation purchased an additional 40% of the stock in Gold on October 24, 2018, and an additional 25% on April 4, 2019. On July 25, 2019, Blue Corporation purchased the remaining 25% of Gold Corporation stock outstanding. a. For purposes of the § 338 election, on what date does a qualified stock purchase occur? b. What is the due date for making the § 338 election?

To qualify for a partial liquidation under the termination of a business test, the distribution must consist of the assets of a qualified trade or business.

Liquidation expenses incurred by a corporation are generally deductible as § 162 trade or business expenses.

The stock in Crimson Corporation is owned by Angel and Melawi, who are unrelated. Angel owns 60% and Melawi owns 40% of the stock. All of Crimson Corporation's assets were acquired by purchase. The following assets are to be distributed in complete liquidation of Crimson Corporation: Adjusted Fair Market Basis Value Cash \ 300,000 \ 300,000 Inventory 110,000 100,000 Equipment 180,000 200,000 Land 460,000 400,000 a. What gain or loss, if any, would Crimson Corporation recognize if it distributes the cash, inventory, and equipment to Angel and the land to Melawi? b. What gain or loss, if any, would Crimson Corporation recognize if it distributes the equipment and land to Angel and the cash and inventory to Melawi?

The Code treats corporate distributions that are a return of a shareholder's investment as sales or exchanges and corporate distributions that are a return from a shareholder's investment as dividends.

Lucinda owns 1,100 shares of Blackbird Corporation stock at a time when Blackbird has 2,000 shares of stock outstanding. The remaining shareholders are unrelated to Lucinda. What is the minimum number of shares Blackbird must redeem from Lucinda so that the transaction will qualify as a disproportionate redemption?

When is a redemption to pay death taxes under § 303 most advantageous?

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