Exam 8: Corporate Formation, Reorganization, and Liquidation

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing sole shareholder?

Gain and loss realized in a §351 transaction will be recognized if the taxpayer receives boot in the exchange.

To meet the control test under §351, taxpayers transferring property to a corporation must in aggregate own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock after the transfer.

Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete liquidation of the company. In the exchange, Red Blossom received land with a fair market value of $535,000. The corporation's basis in the Tea Company stock was $315,000. The land had a basis to Tea Company of $617,500. What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives?

Control as it relates to a §351 transaction is strictly defined to be 80 percent or more of the voting power of the stock of the corporation to which property is transferred.

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a §351 transaction. In all cases, the assumed liability will be treated as boot received by Jane.

Jamie transferred 100 percent of her stock in Fox Company to Otter Corporation in a Type A merger. In exchange, she received stock in Otter with a fair market value of $400,000 plus $600,000 in cash. Jamie's tax basis in the Fox stock was $600,000. What amount of gain does Jamie recognize in the exchange and what is her basis in the Otter stock she receives?

Rich and Rita propose to have their corporation, Big Blue, acquire another corporation, Green Company, in a stock-for-stock Type B acquisition. The sole shareholder of Green, Mark Dee, will receive $500,000 of Big Blue voting stock in the transaction. Mark's tax basis in his Green stock is $100,000. What is Mark's tax basis in the Big Blue stock he receives in the exchange and what is Big Blue's basis in the Green stock it receives in return?

Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation in exchange for stock with a fair market value of $650 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

Robin transferred her 60 percent interest to Cardinal Company as part of a complete liquidation of the company. In the exchange, she received land with a fair market value of $800,000. Robin's basis in the Cardinal stock was $900,000. The land had a basis to Cardinal Company of $1,000,000. What amount of loss does Cardinal recognize in the exchange and what is Robin's basis in the land she receives? The distribution was non-pro rata to Robin, a related person.

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 best describes the tax benefits that arise from the sale of §1244 stock?

Which of the following statements best describes the application of the continuity of enterprise principle to a Type A tax-deferred reorganization?

Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?

A reverse triangular reorganization requires that the target shareholders receive voting stock of the acquiring corporation.

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 Mike recognize in the complete liquidation?

Which of the following amounts is not included in the computation of amount realized in an exchange?

Rachelle transfers property with a tax basis of $980 and a fair market value of $1,280 to a corporation in exchange for stock with a fair market value of $720 and $88 incash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $472 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

Camille transfers property with a tax basis of $800 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $850 and $350 in cash in a transaction that qualifies for deferral under section 351. Camille also incurred selling expenses of $100. What is the amount realized by Camille in the exchange?

Julian transferred 100 percent of his stock in Lemon Company to Apricot Corporation in a Type B stock-for-stock exchange. In exchange, he received stock in Apricot with a fair market value of $200,000. Julian's tax basis in the Lemon stock was $400,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?