Question 1

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

Accepted Answer

A)  Buyers generally prefer to buy assets because they can take a tax basis in the assets acquired equal to the assets' fair market value. 
B)  Buyers generally prefer to buy stock because they can take a tax basis in the underlying assets of the company acquired equal to the assets' fair market value. 
C)  Sellers generally prefer to sell assets in a tax-deferred reorganization to avoid higher tax rates imposed on gains from the sale of non-capital assets. 
D) Sellers generally prefer to sell stock because they can recognize capital gain on the sale taxed at preferential rates. 
A)  Buyers generally prefer to buy assets because they can take a tax basis in the assets acquired equal to the assets' fair market value. 
B)  Buyers generally prefer to buy stock because they can take a tax basis in the underlying assets of the company acquired equal to the assets' fair market value. 
C)  Sellers generally prefer to sell assets in a tax-deferred reorganization to avoid higher tax rates imposed on gains from the sale of non-capital assets. 
D) Sellers generally prefer to sell stock because they can recognize capital gain on the sale taxed at preferential rates. B

Question 2

Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $750 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 Rachelle's tax basis in the stock received in the exchange?

Accepted Answer

A)  $900 
B)  $850 
C)  $750 
D) $700 
A)  $900 
B)  $850 
C)  $750 
D) $700 D

Question 3

A taxpayer always will have a tax basis in boot received in a section 351 transaction equal to its fair market value.

Accepted Answer

A) True 
 B)False  True

Question 4

Sue transferred 100 percent of her stock in Oakland Company to Applegate Corporation in a Type A merger. In exchange she received stock in Applegate with a fair market value of $800,000 plus $400,000 in cash. Sue's tax basis in the Oakland stock was $1,500,000. What amount of gain or loss does Sue recognize in the exchange and what is her basis in the Applegate stock she receives?

Accepted Answer

No loss recognized. Her basis in the App

Question 5

A shareholder will own the same percentage of stock in the distributing corporation under both a spin-off and a split-off of a subsidiary.
A split-off is non-pro rata and usually results in shareholders changing their relative ownership percentages in the distributing corporation.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  Cash received 
B)  Fair market value of property received 
C)  Selling expenses 
D) Adjusted basis of property transferred 
A)  Cash received 
B)  Fair market value of property received 
C)  Selling expenses 
D) Adjusted basis of property transferred

Question 7

Maria defers $100 of gain realized in a section 351 transaction. The stock she receives in the exchange has a fair market value of $500. Maria's tax basis in the stock will be $400.

Accepted Answer

A) True 
 B)False

Question 8

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 $500,000. The corporation's basis in the Tea Company stock was $300,000. The land had a basis to Tea Company of $600,000. What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives?

Accepted Answer

A)  $200,000 gain recognized and a basis in the land of $600,000 
B)  $200,000 gain recognized and a basis in the land of $500,000 
C)  No gain recognized and a basis in the land of $600,000 
D) No gain recognized and a basis in the land of $300,000 
A)  $200,000 gain recognized and a basis in the land of $600,000 
B)  $200,000 gain recognized and a basis in the land of $500,000 
C)  No gain recognized and a basis in the land of $600,000 
D) No gain recognized and a basis in the land of $300,000

Question 9

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?

Accepted Answer

A)  $1,200 
B)  $1,100 
C)  $850 
D) $750 
A)  $1,200 
B)  $1,100 
C)  $850 
D) $750

Question 10

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?

Accepted Answer

A)  $400,000 gain recognized and a basis in Otter stock of $400,000 
B)  $600,000 gain recognized and a basis in Otter stock of $400,000 
C)  $400,000 gain recognized and a basis in Otter stock of $600,000 
D) $600,000 gain recognized and a basis in Otter stock of $600,000 
A)  $400,000 gain recognized and a basis in Otter stock of $400,000 
B)  $600,000 gain recognized and a basis in Otter stock of $400,000 
C)  $400,000 gain recognized and a basis in Otter stock of $600,000 
D) $600,000 gain recognized and a basis in Otter stock of $600,000

Question 11

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?

Accepted Answer

Mark's basis in the Big Blue stock is $1

Question 12

A taxpayer must receive voting common stock to be eligible for deferral in a section 351 exchange.
The stock can be voting or nonvoting, common or preferred.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following requirements do not have to be met in a section 351 transaction?

Accepted Answer

A)  Each transferor of property must receive stock equal to at least 80 percent of the fair market value of the property transferred. 
B)  In the aggregate, the transferors of property to the corporation must collectively control the corporation immediately after the transfers. 
C)  Only property transferred to a corporation is eligible for deferral. 
D) All transfers of property to a corporation must be made simultaneously to qualify for deferral. 
A)  Each transferor of property must receive stock equal to at least 80 percent of the fair market value of the property transferred. 
B)  In the aggregate, the transferors of property to the corporation must collectively control the corporation immediately after the transfers. 
C)  Only property transferred to a corporation is eligible for deferral. 
D) All transfers of property to a corporation must be made simultaneously to qualify for deferral.

Question 14

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?

Accepted Answer

A)  $600 
B)  $550 
C)  $500 
D) $450 
A)  $600 
B)  $550 
C)  $500 
D) $450

Question 15

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?

Accepted Answer

A)  $200,000 loss recognized and a basis in Apricot stock of $200,000 
B)  No loss recognized and a basis in Apricot stock of $400,000 
C)  $200,000 loss recognized and a basis in Apricot stock of $400,000 
D) No loss recognized and a basis in Apricot stock of $200,000 
A)  $200,000 loss recognized and a basis in Apricot stock of $200,000 
B)  No loss recognized and a basis in Apricot stock of $400,000 
C)  $200,000 loss recognized and a basis in Apricot stock of $400,000 
D) No loss recognized and a basis in Apricot stock of $200,000

Question 16

April transferred 100 percent of her stock in June Company to March Corporation in a taxable merger. In exchange she received stock in March with a fair market value of $400,000 plus $1,200,000 in cash. April's tax basis in the June stock was $2,000,000. What amount of loss does April recognize in the exchange and what is her basis in the March stock she receives?

Accepted Answer

$400,000 capital loss. Her basis in the

Question 17

Generally, before gain or loss is realized for tax purposes, the taxpayer must engage in a transaction.

Accepted Answer

A) True 
 B)False

Question 18

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?

Accepted Answer

A)  $100,000 gain recognized by Spartan and a basis in the land of $200,000 to Katarina 
B)  $150,000 gain recognized by Spartan and a basis in the land of $200,000 to Katarina 
C)  No gain recognized by Spartan and a basis in the land of $100,000 to Katarina 
D) No gain recognized by Spartan and a basis in the land of $50,000 to Katarina 
A)  $100,000 gain recognized by Spartan and a basis in the land of $200,000 to Katarina 
B)  $150,000 gain recognized by Spartan and a basis in the land of $200,000 to Katarina 
C)  No gain recognized by Spartan and a basis in the land of $100,000 to Katarina 
D) No gain recognized by Spartan and a basis in the land of $50,000 to Katarina

Question 19

Oriole, Inc. decided to liquidate its wholly-owned subsidiary, Tiger Corporation. Tiger had the following tax accounting balance sheet.
a. What amount of gain or loss does Tiger recognize in the complete liquidation?
b. What amount of gain or loss does Oriole recognize in the complete liquidation?
c. What is Oriole's tax basis in the building and land after the complete liquidation?

Accepted Answer

@#IMG-DLM& a. No gain or loss is recognized.
b. No

Question 20

The tax basis of property received by a noncorporate shareholder in a complete liquidation will be the property's fair market value.
Because the transaction is taxable to noncorporate shareholders, the basis of property received equals its fair market value.

Accepted Answer

A) True 
 B)False

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

A taxpayer always will have a tax basis in boot received in a section 351 transaction equal to its fair market value.

A shareholder will own the same percentage of stock in the distributing corporation under both a spin-off and a split-off of a subsidiary. A split-off is non-pro rata and usually results in shareholders changing their relative ownership percentages in the distributing corporation.

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

Maria defers $100 of gain realized in a section 351 transaction. The stock she receives in the exchange has a fair market value of $500. Maria's tax basis in the stock will be $400.

A taxpayer must receive voting common stock to be eligible for deferral in a section 351 exchange. The stock can be voting or nonvoting, common or preferred.

Which of the following requirements do not have to be met in a section 351 transaction?

Generally, before gain or loss is realized for tax purposes, the taxpayer must engage in a transaction.

The tax basis of property received by a noncorporate shareholder in a complete liquidation will be the property's fair market value. Because the transaction is taxable to noncorporate shareholders, the basis of property received equals its fair market value.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 8: Corporate Formation, Reorganization, and Liquidation

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

A taxpayer always will have a tax basis in boot received in a section 351 transaction equal to its fair market value.

A shareholder will own the same percentage of stock in the distributing corporation under both a spin-off and a split-off of a subsidiary. A split-off is non-pro rata and usually results in shareholders changing their relative ownership percentages in the distributing corporation.

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

Maria defers $100 of gain realized in a section 351 transaction. The stock she receives in the exchange has a fair market value of $500. Maria's tax basis in the stock will be $400.

A taxpayer must receive voting common stock to be eligible for deferral in a section 351 exchange. The stock can be voting or nonvoting, common or preferred.

Which of the following requirements do not have to be met in a section 351 transaction?

Generally, before gain or loss is realized for tax purposes, the taxpayer must engage in a transaction.

The tax basis of property received by a noncorporate shareholder in a complete liquidation will be the property's fair market value. Because the transaction is taxable to noncorporate shareholders, the basis of property received equals its fair market value.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters