Exam 8: Corporate Formation, Neorganization, and Liquidation

Boston,Inc.made a capital contribution of investment property to its 100 percent-owned subsidiary,Hartford Company.The investment property had a fair market value of $1,000,000 and a tax basis to Boston of $250,000.What are the tax consequences to Boston,Inc.on the contribution of the investment property to Hartford Company and what is the tax basis of the investment property to Hartford Company after the contribution to capital?

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

Amy transfers property with a tax basis of $900 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $450 in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $150 on the property transferred.What is Amy's tax basis in the stock received in the exchange?

Katarina transferred her 10 percent interest to Spartan Company as part of a complete liquidation of the company.In the exchange,she received land with a fair market value of $200,000.Katarina's basis in the Spartan stock was $100,000.The land had a basis to Spartan Company of $50,000.What amount of gain does Spartan recognize in the exchange and what is Katarina's basis in the land she receives?

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?

Control as it relates to a section 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.

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?

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?

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

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?

A taxpayer must receive voting common stock to be eligible for deferral in a section 351 exchange.

The definition of property as it relates to a section 351 transaction includes money.

Jasmine transferred 100 percent of her stock in Emerald Company to Jade Corporation in a Type A merger.In exchange she received stock in Jade with a fair market value of $800,000 plus $1,200,000 in cash.Jasmine's tax basis in the Emerald stock was $900,000.What amount of gain does Jasmine recognize in the exchange and what is her basis in the Jade stock she receives?

Billie transferred her 20 percent interest to Jean Company as part of a complete liquidation of the company.In the exchange,she received land with a fair market value of $200,000.Billie's basis in the Jean stock was $100,000.The land had a basis to Jean Company of $400,000.What amount of loss does Jean recognize in the exchange and what is Billie's basis in the land she receives? Billie is not considered a related party to Jean Company.

Which of the following statements best describes the tax law approach to recognizing gain or loss realized in an exchange?

Antoine transfers property with a tax basis of $500 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $550 in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $50 on the property transferred.What is Antoine's tax basis in the stock received in the exchange?

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.

Paladin Corporation transferred its 90 percent interest to Furman Company as part of a complete liquidation of the company.In the exchange,Paladin received land with a fair market value of $1,000,000.The corporation's basis in the Furman Company stock was $400,000.The land had a basis to Furman Company of $200,000.What amount of gain does Paladin recognize in the exchange and what is its basis in the land it receives?

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

Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 in cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $50 on the property transferred.What is Roy's tax basis in the stock received in the exchange?