Exam 6: Corporations: Redemptions and Liquidations

All of the stock in Robin Corporation (E & P of $600,000)is held by three unrelated individuals as follows: Shontelle has 150 shares,Marta has 150 shares,and Diego owns 200 shares.Robin Corporation redeems 100 of Diego's shares (basis of $9,000)for $50,000.If Diego's stock is a capital asset that has been held for the requisite holding period,he has a long-term capital gain of $41,000.

Hummingbird Corporation has 1,000 shares of common stock outstanding owned by unrelated parties as follows: Juan,400 shares,Erika,400 shares,and Dalissa,200 shares.Each of the three shareholders paid $100 per share for the Hummingbird stock 10 years ago.Hummingbird has $800,000 of accumulated E & P and $40,000 of current E & P.In January of the current year,Hummingbird distributes land held as an investment (adjusted basis of $40,000,fair market value of $200,000)to Dalissa in redemption of all 200 of her shares.In December of the current year,Hummingbird distributes securities held as an investment (adjusted basis of $280,000,fair market value of $250,000)to Erika in redemption of 250 of her shares. a.What are the tax results to Dalissa on the redemption of her Hummingbird stock? b.What are the tax results to Erika on the redemption of her Hummingbird stock? c.What gain or loss is recognized by to Hummingbird Corporation on the two redemptions?

Which of the following corporate distributions would qualify as a partial liquidation?

Sam's gross estate includes stock in Tern Corporation and Wren Corporation,valued at $500,000 and $650,000,respectively.Sam's adjusted gross estate equals $2,600,000.The stock represents 22% of Tern's outstanding stock and 28% of Wren's outstanding stock.Death taxes and funeral and administration expenses for Sam's estate total $500,000.Sam had a basis of $70,000 in the Tern stock and $100,000 in the Wren stock at the time of his death.None of the beneficiaries of Sam's estate own (directly or indirectly)any stock in Wren Corporation,but some of the beneficiaries own stock of Tern Corporation.Consider the following independent questions. a.What are the tax consequences to the estate if all of its Tern stock is redeemed by Tern Corporation for $500,000? b.What are the tax consequences to the estate if all of its Wren stock is redeemed by Wren Corporation for $650,000?

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 business credit carryover of $30,000 at the time of liquidation.The parent acquires the business credit carryover.

In a corporate liquidation,the built-in loss limitation can apply to sales of property in addition to liquidating distributions of property.

Mary and Jane,unrelated taxpayers,hold Gray Corporation's stock equally.One year before the complete liquidation of Gray,Mary transfers land (basis of $200,000,fair market value of $130,000)to Gray Corporation as a contribution to capital.Assume that Mary also contributed other property in the same transaction having a basis of $20,000 and fair market value of $100,000.In liquidation,Gray distributes the land to Jane.At the time of the liquidation,the land is worth $110,000. a.How much loss may Gray Corporation recognize on the distribution of the land to Jane? b.Assume that the transfer of land to Gray Corporation was made so that the corporation could subdivide the land and build residential housing. However, a subsequent deterioration of the housing market forced Gray Corporation to abandon its plans. What amount of loss may Gray Corporation recognize on the distribution of the land to Jane?

Indigo,the parent corporation,has a basis of $550,000 in the stock of Brown Corporation,a subsidiary in which it owns 90% of all classes of stock.Indigo purchased the stock in Brown Corporation 10 years ago.In the current year,Indigo Corporation liquidates Brown Corporation and acquires assets worth $800,000 and with a tax basis to Brown Corporation of $625,000.What basis will Indigo Corporation have in the assets acquired from Brown Corporation?

Corporate shareholders receive more favorable tax treatment from a qualifying stock redemption than from a dividend distribution.

Penguin Corporation purchased bonds (basis of $85,000)of its 100% owned subsidiary,Finch Corporation,at a discount.Pursuant to a § 332 liquidation and in satisfaction of the indebtedness,Finch distributes land worth $100,000 (basis of $75,000)to Penguin.Which of the following statements is correct with respect to the distribution of land?

In applying the stock attribution rules to a stock redemption,stock owned by a partner is deemed to be owned in full by the partnership.

Orange Corporation distributes property worth $200,000,basis of $140,000,to a shareholder in a distribution that is a qualifying stock redemption.The property is subject to a liability of $90,000,which the shareholder assumes.The basis of the property to the shareholder is:

A corporate distribution treated as a stock redemption under state law will always result in sale or exchange treatment for the shareholder.

Legal dissolution under state law is required for a liquidation to be complete for tax purposes.

Formed in 1999,Purple Corporation has two equal shareholders,Joshua and Ellie,who are father and daughter.In 2007,the two shareholders transfer properties to Purple in a § 351 exchange.Joshua transferred undeveloped land (basis of $150,000,fair market value of $100,000)and securities (basis of $25,000,fair market value of $100,000),while Ellie transferred equipment (basis of $120,000,fair market value of $200,000).Purple Corporation adopts a plan of liquidation in 2008,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 undeveloped land that had decreased in value to $50,000 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 undeveloped land?

Which of the following is an incorrect statement regarding the tax consequences of a § 306 stock sale?

A shareholder's basis in property received in a qualifying stock redemption is the property's fair market value but the basis of property received in a nonqualified stock redemption is same as the corporation's basis in the property.

Describe the requirements for and tax consequences of a § 338 election.

For a stock redemption to qualify for sale or exchange treatment under § 303,it must satisfy the § 302 redemption provisions.

Gains and losses are recognized by a subsidiary corporation on liquidating distributions to a minority shareholder in a § 332 liquidation.