Question 1

Which of the following principles does not need to be satisfied for an acquisition to be a tax-deferred reorganization?

Accepted Answer

A)   Continuity of interest.
B)   Continuity of purpose.
C)   Business purpose.
D)   Continuity of business enterprise. B

Question 2

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  False

Question 3

A section 338 transaction is a stock acquisition treated as an asset acquisition based on an election made by the acquirer.

Accepted Answer

A) True 
 B)False  True

Question 4

Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger.In exchange,she received stock in Plum with a fair market value of $500,000 plus $500,000 in cash.Simone's tax basis in the Purple stock was $200,000.What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

Accepted Answer

A)   $800,000 gain recognized and a basis in Plum stock of $1,000,000.
B)   $800,000 gain recognized and a basis in Plum stock of $500,000.
C)   $500,000 gain recognized and a basis in Plum stock of $500,000.
D)   $500,000 gain recognized and a basis in Plum stock of $200,000.

Question 5

Simon transferred 100 percent of his stock in Idol Company to Bobcat Corporation in a Type A merger.In exchange he received stock in Bobcat with a fair market value of $2,000,000 plus $500,000 in cash.Simon's tax basis in the Idol stock was $1,500,000.What amount of gain does Simon recognize in the exchange and what is his basis in the Bobcat stock he receives?

Accepted Answer

The answer of Simon transferred 100 percent of his stock...

Question 6

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.

Question 7

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

Question 8

Ken and Jim agree to go into business together selling old comic books and records.According to the agreement,Ken will contribute inventory valued at $200,000 in return for 80 percent of the stock in the corporation.Ken's tax basis in the inventory is $100,000.Jim will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualify as organizational expenditures).The accounting services are valued at $50,000.
Please answer the following questions about the tax consequences of the transaction to Ken.
a.What amount of gain or loss does Ken realize on the formation of the corporation?
b.What amount of gain or loss,if any,does he recognize?
c.What is Ken's tax basis in the stock he receives in return for his contribution of property to the corporation?

Accepted Answer

The answer of Ken and Jim agree to go into...

Question 9

Jalen transferred his 10 percent interest to Wolverine Company as part of a complete liquidation of the company.In the exchange,he received land with a fair market value of $100,000.Jalen's basis in the Wolverine stock was $50,000.The land had a basis to Wolverine Company of $80,000.What amount of gain does Jalen recognize in the exchange and what is his basis in the land he receives?

Accepted Answer

A)   $50,000 gain recognized and a basis in the land of $100,000.
B)   $50,000 gain recognized and a basis in the land of $80,000.
C)   No gain recognized and a basis in the land of $80,000.
D)   No gain recognized and a basis in the land of $50,000.

Question 10

Which of the following statements best describes the "built-in loss" rules that apply to property transferred to a corporation under section 351?

Accepted Answer

A)   If the basis of a property transferred to a corporation under section 351 exceeds its fair market value, the corporation will always take a tax basis in the property equal to the property's fair market value.
B)   If the basis of a property transferred to a corporation under section 351 exceeds its fair market value, the corporation will always take a tax basis in the property equal to the property's tax basis in the hands of the shareholder.
C)   If the aggregate basis of all property transferred to a corporation under section 351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate fair market value of the property.
D)   If the aggregate basis of all property transferred to a corporation under section 351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate tax basis of the property.

Question 11

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.

Accepted Answer

A)   $200,000 loss recognized by Cardinal and a basis in the land of $1,000,000 to Robin.
B)   $200,000 loss recognized by Cardinal and a basis in the land of $800,000 to Robin.
C)   No loss recognized by Cardinal and a basis in the land of $1,000,000 to Robin.
D)   No loss recognized by Cardinal and a basis in the land of $800,000 to Robin.

Question 12

To meet the control test under section 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.

Accepted Answer

A) True 
 B)False

Question 13

In December 2017,Jill incurred a $50,000 loss on the sale of Crown Corporation stock that she purchased in 2010.The stock satisfied all of the §1244 stock requirements at the time of issue.Jill is married to Jack and together they file a joint tax return.How much of the loss can Jack and Jill deduct in 2017,assuming they do not have capital gains in the current or prior years,and what is the character of the loss?

Accepted Answer

The answer of In December 2017,Jill incurred a $50,000 loss...

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a corporation in exchange for stock with a fair market value of $2,000 and $500 in cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $500 on the property transferred.What is Ashley's tax basis in the stock received in the exchange?

Accepted Answer

A)   $5,000.
B)   $4,000.
C)   $3,000.
D)   $2,000.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements best describes the tax results to a shareholder in a section 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 section 351 transfer are always treated as boot.
B)   Liabilities assumed by a corporation on a section 351 transfer are never treated as boot.
C)   Liabilities assumed by a corporation on a section 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 section 351 transfer are treated as boot if there is no business purpose for the assumption of the liabilities by the corporation.

Question 20

Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation in exchange for stock with a fair market value of $600.In addition,Sami received stock with a fair market value of $50 in exchange for services she provided to the corporation in the incorporation process.Which of the following statements best describes the tax result to Sami because of the exchanges?

Accepted Answer

A)   Sami will recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
B)   Sami will recognize $50 of compensation income, but she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
C)   Sami will not recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
D)   Sami will not recognize $50 of compensation income, and she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.

Exam 8: Corporate Formation, Neorganization, and Liquidation

Which of the following principles does not need to be satisfied for an acquisition to be a tax-deferred reorganization?

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

A section 338 transaction is a stock acquisition treated as an asset acquisition based on an election made by the acquirer.

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

Which of the following statements best describes the "built-in loss" rules that apply to property transferred to a corporation under section 351?

To meet the control test under section 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.

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.

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

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

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

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