Question 1

What are the tax consequences of a § 332 liquidation to the parent corporation, subsidiary corporation, and minority shareholder?

Accepted Answer

A parent corporation recognizes no gain or loss pursuant to a § 332 liquidation, and the parent's basis in property received is equal the subsidiary's basis in such property.In addition, a carryover holding period applies for the property. The parent also acquires the subsidiary's other tax attributes (e.g., E & P, net operating loss carryover, business tax credit carryover, capital loss carryover). The parent's basis in the subsidiary stock disappears.(If property is received from the subsidiary in satisfaction of indebtedness, the parent recognizes gain or loss equal to the difference between the fair market value of the property received and the parent's basis in the indebtedness.)
A subsidiary corporation recognizes no gain or loss on distributions of property to a parent corporation in a § 332 liquidation, including property distributed in satisfaction of indebtedness. However, a subsidiary recognizes gain (but not loss) on the distribution of property to any minority shareholder.
A minority shareholder recognizes gain or loss equal to the difference between the fair market value of the property received and the shareholder's basis in the subsidiary stock. The minority shareholder's basis in property received equals the property's fair market value on the date of distribution.

Question 2

Which of the following statements is true concerning all types of tax-free corporate reorganizations?

Accepted Answer

A)  Assets are transferred from one corporation to another.
B)  Stock is exchanged with shareholders.
C)  Liabilities that are assumed when cash is also used as consideration will be treated as boot.
D)  Corporations and shareholders involved in the reorganization may recognize gains but not losses.
E)  None of the above statements is true. E

Question 3

On April 7, 2011, Crow Corporation acquired land in a transaction that qualified under § 351.The land had a basis of $400,000 to the contributing shareholder and a fair market value of $310,000.Assume that the shareholder also transferred equipment (basis of $100,000, fair market value of $200,000) in the same § 351 exchange.Crow Corporation adopted a plan of liquidation on October 5, 2012.On December 7, 2012, Crow Corporation distributes the land to Ali, a shareholder who owns 20% of the stock in Crow Corporation.The land's fair market value was $230,000 on the date of the distribution to Ali.Crow Corporation acquired the land to use as security for a loan it had hoped to obtain from a local bank.In negotiating with the bank for a loan, the bank required the additional capital investment as a condition of its making a loan to Crow Corporation.How much loss can Crow Corporation recognize on the distribution of the land?

Accepted Answer

A)  $0.
B)  $80,000.
C)  $90,000.
D)  $170,000.
E)  None of the above. D

Question 4

Compare the sale of a corporation's assets with a sale of its stock from the perspective of the seller.

Accepted Answer

The answer of Compare the sale of a corporation's assets...

Question 5

The treatment of corporate reorganizations is similar to like-kind exchanges.

Accepted Answer

A) True 
 B)False

Question 6

For purposes of the § 338 election, a corporation must acquire, in a taxable transaction, at least 80% of the stock (voting power and value) of another corporation within an 12-month period.

Accepted Answer

A) True 
 B)False

Question 7

One difference between the tax treatment accorded nonliquidating and liquidating distributions is with respect to the recognition of losses by the distributing corporation. As a general rule, a corporation recognizes losses on liquidating distributions of depreciated property (fair market value less than basis) but not on nonliquidating distributions of such property.

Accepted Answer

A) True 
 B)False

Question 8

What will cause the corporations involved in a § 368 reorganization to recognize gain or loss? What will cause shareholders of the companies involved in the corporate reorganization to recognize gain or loss? If gain is recognized by shareholders, what are the different tax character possibilities?

Accepted Answer

The answer of What will cause the corporations involved in...

Question 9

A subsidiary corporation is liquidated at a time when it is indebted to its parent corporation. The subsidiary corporation distributes property to the parent corporation in satisfaction of the indebtedness. If the liquidation is governed by § 332, neither the subsidiary nor the parent recognize gain or loss on the transfer of property in satisfaction of indebtedness.

Accepted Answer

A) True 
 B)False

Question 10

In corporate reorganizations, an acquiring corporation using property other than stock as consideration may recognize gains but not losses on the transaction.

Accepted Answer

A) True 
 B)False

Question 11

Corporate reorganizations can meet the requirements to qualify as like-kind exchanges if there is no boot involved.

Accepted Answer

A) True 
 B)False

Question 12

One advantage of acquiring a corporation via an asset purchase instead of a stock purchase is that an asset purchase avoids the transfer of the acquired corporation's liabilities.

Accepted Answer

A) True 
 B)False

Question 13

A parent corporation must make the § 338 election by the fifteenth day of the third month following the close of the tax year in which a qualified stock purchase occurs.

Accepted Answer

A) True 
 B)False

Question 14

The stock in Tangerine Corporation is held by two unrelated individuals, Janet (60%) and Joaquin (40%).One year before the liquidation of Tangerine, the shareholders transfer properties to the corporation in a transaction that qualifies under § 351.Included in that transfer was land (basis of $600,000, fair market value of $650,000).Pursuant to its liquidation in the current year, Tangerine Corporation distributes the land (now worth $500,000) pro rata to the shareholders. What amount of loss will Tangerine recognize on the distribution?

Accepted Answer

A)  $0.
B)  $40,000.
C)  $60,000.
D)  $100,000.
E)  None of the above.

Question 15

For corporate restructurings, meeting the § 368 reorganization "Type" requirements is all that needs to be considered when planning the structure of the transaction.

Accepted Answer

A) True 
 B)False

Question 16

Since debt security holders do not own stock, they do not fall under the corporate reorganization rules.

Accepted Answer

A) True 
 B)False

Question 17

The stock of Penguin Corporation is held as follows: 85% by Duck Corporation and 15% by Gerald, an individual. Penguin Corporation is liquidated in December of the current year, pursuant to a plan adopted earlier in the year. Penguin Corporation distributes land with a basis of $350,000 and fair market value of $390,000 to Gerald in liquidation of his stock interest. Gerald had a basis of $200,000 in his Penguin stock. How much gain will Penguin Corporation recognize in this liquidating distribution?

Accepted Answer

A)  $0.
B)  $40,000.
C)  $190,000.
D)  $390,000.
E)  None of the above.

Question 18

If a parent corporation makes a § 338 election, the subsidiary corporation must be liquidated.

Accepted Answer

A) True 
 B)False

Question 19

Indigo has a basis of $1 million in the stock of Owl Corporation, a subsidiary in which it owns 100% of all classes of stock. Indigo purchased the stock in Owl 10 years ago. In the current year, Indigo liquidates Owl and acquires assets worth $1.2 million. At the time of its liquidation, Owl Corporation had a basis of $800,000 in the assets and E & P of $500,000.Which of the following statements is correct with respect to the liquidation?

Accepted Answer

A)  Owl recognizes a gain of $400,000.
B)  Indigo has an $800,000 basis in the assets.
C)  Owl's E & P of $500,000 is eliminated.
D)  Indigo recognizes a gain of $200,000.
E)  None of the above.

Question 20

The text discusses four different limitations on loss recognition by liquidating corporations. Provide a brief description of each of these loss limitations.

Accepted Answer

The answer of The text discusses four different limitations on...

Exam 20: Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

What are the tax consequences of a § 332 liquidation to the parent corporation, subsidiary corporation, and minority shareholder?

Which of the following statements is true concerning all types of tax-free corporate reorganizations?

Compare the sale of a corporation's assets with a sale of its stock from the perspective of the seller.

The treatment of corporate reorganizations is similar to like-kind exchanges.

For purposes of the § 338 election, a corporation must acquire, in a taxable transaction, at least 80% of the stock (voting power and value) of another corporation within an 12-month period.

In corporate reorganizations, an acquiring corporation using property other than stock as consideration may recognize gains but not losses on the transaction.

Corporate reorganizations can meet the requirements to qualify as like-kind exchanges if there is no boot involved.

One advantage of acquiring a corporation via an asset purchase instead of a stock purchase is that an asset purchase avoids the transfer of the acquired corporation's liabilities.

A parent corporation must make the § 338 election by the fifteenth day of the third month following the close of the tax year in which a qualified stock purchase occurs.

For corporate restructurings, meeting the § 368 reorganization "Type" requirements is all that needs to be considered when planning the structure of the transaction.

Since debt security holders do not own stock, they do not fall under the corporate reorganization rules.

If a parent corporation makes a § 338 election, the subsidiary corporation must be liquidated.

The text discusses four different limitations on loss recognition by liquidating corporations. Provide a brief description of each of these loss limitations.