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Exam 19: Corporate Formation,reorganization,and Liquidation

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Question 51

True/False

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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.

A) True
B) False

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Question 52

Multiple Choice

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

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.

E) All of the above
F) A) and C)

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Question 53

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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?

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?

Which of the following statements best describes the concept of control as it applies to a §351 transaction?

Boston,Inc.made a capital contribution of investment property to its 100 percent-owned subsidiary,Hartford Company.The investment property had a fair market value of $1,000,000 and a tax basis to Boston of $250,000.What are the tax consequences to Boston,Inc.on the contribution of the investment property to Hartford Company and what is the tax basis of the investment property to Hartford Company after the contribution to capital?

Gary and Laura decided to liquidate their jointly owned corporation,Amelia,Inc.After liquidating its remaining inventory and paying off its remaining liabilities,Amelia had the following tax accounting balance sheet. Under the terms of the agreement,Gary will receive the $100,000 cash in exchange for his interest in Amelia.Gary's tax basis in his Amelia stock is $30,000.Laura will receive the building and land in exchange for her interest in Amelia.Laura's tax basis in her Amelia stock is $60,000. What amount of gain or loss does Amelia recognize in the complete liquidation?

Zhao incorporated her 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 corporation also assumed a mortgage of $50,000 attached to the building and land.The fair market value of the corporation's stock received in the exchange was $330,000.The transaction met the requirements to be tax-deferred under §351. a.What amount of gain or loss does Zhao realize on the transfer of the property to her corporation? b.What amount of gain or loss does Zhao recognize on the transfer of the property to her corporation? c.What is the corporation's adjusted basis in each of the assets received in the exchange?

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

Tax considerations are always the primary reason for structuring an acquisition.

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

Which of the following requirements does not have to be met in a §351 transaction?

Which statement best describes the concept of realization as it applies to gain or loss?

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?

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

Billie transferred her 20 percent interest to Jean Company as part of a complete liquidation of the company.In the exchange,she received land with a fair market value of $200,000.Billie's basis in the Jean stock was $100,000.The land had a basis to Jean Company of $400,000.What amount of loss does Jean recognize in the exchange and what is Billie's basis in the land she receives? Billie is not considered a related party to Jean Company.

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

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.Boston paid $600,000 for the land several years ago and it currently has a fair market value of $1,000,000.What is the tax basis of the land to Fenway Company?

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?

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 §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?