Question 1

Which of the following statements best describes the tax results to a shareholder in a §351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

Accepted Answer

A) Liabilities assumed by a corporation on a §351 transfer are always treated as boot. 
B) Liabilities assumed by a corporation on a §351 transfer are never treated as boot. 
C) Liabilities assumed by a corporation on a §351 transfer are treated as boot if the total liabilities assumed exceed the total basis of the assets transferred. 
D) Liabilities assumed by a corporation on a §351 transfer are treated as boot if there is no business purpose for the assumption of the liabilities by the corporation.

Question 2

In December 2019, Zeb incurred a $117,500 loss on the sale of Pike Corporation stock that he purchased in 2010. The stock satisfied all of the §1244 stock requirements at the time of issue. In addition, Zeb reported a long-term capital gain of $57,750 in 2019. Zeb is single. How much of the loss can Zeb deduct in 2019, and what is the character of the loss?

Accepted Answer

The answer of In December 2019, Zeb incurred a $117,500...

Question 3

Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received by the shareholders of the target corporation in the transaction.

Accepted Answer

A) True 
 B)False

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

The answer of Sue transferred 100 percent of her stock...

Question 5

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

Question 6

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

Accepted Answer

A) §1244 allows an individual shareholder to exempt gain from sale of the stock from tax. 
B) §1244 allows an individual shareholder to deduct all of the loss from sale of the stock as an ordinary loss in the year of the sale. 
C) §1244 allows an individual shareholder to deduct up to $50,000 of the loss from sale of the stock as an ordinary loss in the year of the sale. 
D) §1244 allows a corporate shareholder to deduct up to $50,000 of the loss from sale of the stock as an ordinary loss in the year of the sale.

Question 7

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 the corporation's tax basis in the property received in the exchange?

Accepted Answer

A) $900 
B) $850 
C) $800 
D) $750

Question 8

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 $385,000. Julian's tax basis in the Lemon stock was $770,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

Accepted Answer

A) $385,000 loss recognized and a basis in Apricot stock of $385,000 
B) No loss recognized and a basis in Apricot stock of $770,000 
C) $385,000 loss recognized and a basis in Apricot stock of $770,000 
D) No loss recognized and a basis in Apricot stock of $385,000

Question 9

Phillip incorporated his sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases.
  The fair market value of the corporation's stock received in the exchange was $400,000. The transaction met the requirements to be tax-deferred under §351.
a. What amount of net gain or loss does Phillip realize on the transfer of the property to his corporation?
b. What amount of gain or loss does Phillip recognize on the transfer of the property to his corporation?
c. What is the corporation's adjusted basis in each of the assets received in the exchange?

Accepted Answer

The answer of Phillip incorporated his sole proprietorship by transferring...

Question 10

A liquidated corporation will always recognize loss in a complete liquidation where none of the shareholders is a corporation.

Accepted Answer

A) True 
 B)False

Question 11

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 noncapital assets. 
D) Sellers generally prefer to sell stock because they can recognize capital gain on the sale taxed at preferential rates.

Question 12

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 $995,000. Robin's basis in the Cardinal stock was $1,027,500. The land had a basis to Cardinal Company of $1,040,000. 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.

Accepted Answer

A) $45,000 loss recognized by Cardinal and a basis in the land of $1,040,000 to Robin 
B) $45,000 loss recognized by Cardinal and a basis in the land of $995,000 to Robin 
C) No loss recognized by Cardinal and a basis in the land of $1,040,000 to Robin 
D) No loss recognized by Cardinal and a basis in the land of $995,000 to Robin

Question 13

Which of the following statements best describes the impact of receiving boot in a §351 transaction?

Accepted Answer

A) Boot received has no impact on the recognition of gain or loss realized in a §351 transaction. 
B) Boot received causes gain realized to be recognized, but not loss realized. 
C) Boot received causes loss realized to be recognized, but not gain realized. 
D) Boot received causes gain or loss realized to be recognized.

Question 14

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

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Packard Corporation transferred its 100 percent interest to State Company as part of a complete liquidation of the company. In the exchange, Packard received land with a fair market value of $300,000. Packard's basis in the State stock was $600,000. The land had a basis to State Company of $500,000. What amount of loss does State recognize in the exchange and what is Packard's basis in the land it receives?

Accepted Answer

A) $200,000 loss recognized by State and a basis in the land of $300,000 to Packard 
B) $200,000 loss recognized by State and a basis in the land of $500,000 to Packard 
C) No loss recognized by State and a basis in the land of $300,000 to Packard 
D) No loss recognized by State and a basis in the land of $500,000 to Packard

Question 18

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?

Accepted Answer

A) The shareholder recognizes a gain or loss on the transfer, and the corporation's basis in the property transferred equals its fair market value. 
B) The shareholder does not recognize a gain or loss on the transfer, and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred. 
C) The shareholder recognizes a gain or loss on the transfer, and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred. 
D) The shareholder does not recognize a gain or loss on the transfer, and the corporation's basis in the property transferred equals zero.

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

In a tax-deferred transaction, the calculation of a taxpayer's tax basis in property received always begins with its cost to the taxpayer.

Accepted Answer

A) True 
 B)False

Exam 19: Corporate Formation, Reorganization, and Liquidation

Which of the following statements best describes the tax results to a shareholder in a §351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received by the shareholders of the target corporation in the transaction.

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

A liquidated corporation will always recognize loss in a complete liquidation where none of the shareholders is a corporation.

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

Which of the following statements best describes the impact of receiving boot in a §351 transaction?

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

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

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?

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.

In a tax-deferred transaction, the calculation of a taxpayer's tax basis in property received always begins with its cost to the taxpayer.