Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock with a fair market value of $3,000 and $2,000 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stock received in the exchange?

Accepted Answer

A)  $6,000 
B)  $5,000 
C)  $4,000 
D)  $3,000

Question 3

Mandel transferred property to his new corporation in a section 351 transaction. One of the properties transferred was land with a fair market value of $200,000 and a tax basis of $250,000. The corporation will always take a tax basis in the land of $200,000 to prevent the "built-in loss" from being transferred from Mandel to the corporation.

Accepted Answer

A) True 
 B)False

Question 4

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

Question 5

A Type A reorganization deals with the transfer of assets by the target corporation in a merger.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements best describes the requirement that must be met in a tax-deferred Type B stock-for-stock reorganization?

Accepted Answer

A)  The 40 percent continuity of interest test must be met with respect to the stock transferred from the acquisition corporation to the target shareholders. 
B)  The acquiring corporation must hold substantially all of the target's properties after the acquisition. 
C)  The target corporation shareholders must receive "solely" voting stock in the acquiring corporation in the exchange. 
D)  The target corporation shareholders must receive voting stock in the acquiring corporation in exchange for 80 percent or more of the target corporation stock.

Question 7

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 8

Which of the following amounts is not included in the computation of a property's adjusted basis in an exchange?

Accepted Answer

A)  Selling expenses incurred by the buyer 
B)  Acquisition cost of the buyer 
C)  Capital improvements made to the property by the buyer 
D)  Depreciation of the property by the buyer

Question 9

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.

Question 10

In December 2011, Zeb incurred a $100,000 loss on the sale of Pike Corporation stock that he purchased in 2005. The stock satisfied all of the §1244 stock requirements at the time of issue. In addition, Zeb reported a long-term capital gain of $40,000 in 2011. Zeb is single. How much of the loss can Zeb deduct in 2011, and what is the character of the loss?

Accepted Answer

The answer of In December 2011, Zeb incurred a $100,000...

Question 11

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 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 12

Which of the following statements best describes the continuity of interest principle as it applies to a tax-deferred acquisition?

Accepted Answer

A)  Continuity of interest requires each shareholder to receive at least 40 percent of the consideration received in equity of the acquirer. 
B)  Continuity of interest requires shareholders in the aggregate to receive at least 40 percent of the consideration received in equity of the acquirer. 
C)  Continuity of interest requires each shareholder to receive at least 80 percent of the consideration received in equity of the acquirer. 
D)  Continuity of interest requires shareholders in the aggregate to receive at least 80 percent of the consideration received in equity of the acquirer.

Question 13

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

Question 14

Juan transferred 100 percent of his stock in Rosa Company to Azul Corporation in a Type B stock-for-stock exchange. In exchange, he received stock in Azul with a fair market value of $1,000,000. Juan's tax basis in the Rosa stock was $400,000. What amount of gain does Juan recognize in the exchange and what is his basis in the Azul stock he receives?

Accepted Answer

A)  $600,000 gain recognized and a basis in Azul stock of $400,000 
B)  No gain recognized and a basis in Azul stock of $400,000 
C)  $600,000 gain recognized and a basis in Azul stock of $1,000,000 
D)  No gain recognized and a basis in Azul stock of $1,000,000

Question 15

The City of Boston made a capital contribution of land to Fenway Company as an inducement to the company to build a manufacturing plant in the city. What is the tax basis of the land to Fenway Company?

Accepted Answer

The answer of The City of Boston made a capital...

Question 16

Which of the following statements best describes the recognition of loss on property transferred to shareholders in complete liquidation of a corporation?

Accepted Answer

A)  The liquidated corporation always recognizes loss on the distribution of property in complete liquidation of the corporation. 
B)  The liquidated corporation never recognizes loss on the distribution of property in complete liquidation of the corporation. 
C)  The liquidated corporation recognizes loss on the distribution of property in complete liquidation of the corporation if the property is distributed to individuals who are not related parties to the corporation. 
D)  The liquidated corporation recognizes loss on the distribution of property in complete liquidation of the corporation only if the property is distributed to individuals who are related parties to the corporation.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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 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?

Accepted Answer

A)  $800 
B)  $750 
C)  $700 
D)  $500

Question 19

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 20

A taxpayer's tax basis in property always begins with its cost to the taxpayer.

Accepted Answer

A) True 
 B)False

Exam 19: Corporate Formation, Reorganization, and Liquidation

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

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

A Type A reorganization deals with the transfer of assets by the target corporation in a merger.

Which of the following statements best describes the requirement that must be met in a tax-deferred Type B stock-for-stock reorganization?

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

Which of the following amounts is not included in the computation of a property's adjusted basis in an exchange?

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

Which of the following statements best describes the continuity of interest principle as it applies to a tax-deferred acquisition?

The City of Boston made a capital contribution of land to Fenway Company as an inducement to the company to build a manufacturing plant in the city. What is the tax basis of the land to Fenway Company?

Which of the following statements best describes the recognition of loss on property transferred to shareholders in complete liquidation of a corporation?

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

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 taxpayer's tax basis in property always begins with its cost to the taxpayer.