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Exam 8: Corporate Formation, Reorganization, and Liquidation

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Question 31

True/False

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Maria defers $100 of gain realized in a §351 transaction. The stock she receives in the exchange has a fair market value of $500. Maria's tax basis in the stock will be $400.

A) True
B) False

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Question 32

Multiple Choice

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Inez transfers property with a tax basis of $200 and a fair market value of $300 to a corporation in exchange for stock with a fair market value of $250 in a transaction that qualifies for deferral under §351. The corporation assumed a liability of $50 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

A) $150
B) $200
C) $250
D) $300

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

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Question 33

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Which of the following statements best describes a §338 transaction?

In December 2019, Zeb incurred a $100,000 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 $40,000 in 2019. Zeb is single. How much of the loss can Zeb deduct in 2019, and what is the character of the loss?

In December 2019, Zeb incurred a $110,500 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 $47,000 in 2019. Zeb is single. How much of the loss can Zeb deduct in 2019, and what is the character of the loss?

A liquidation of a corporation always is a taxable event for thenon-corporate shareholder(s) of the liquidated corporation.

Roberta transfers property with a tax basis of $435 and a fair market value of $559 to a corporation in exchange for stock with a fair market value of $372 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $187 on the property transferred. What is the amount realized by Roberta in the exchange?

Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $100,000. What amount of gain or loss does Michelle recognize in the complete liquidation, and what is her tax basis in the building and land after the complete liquidation?

Harry and Sally formed Empire Corporation on January 2. Harry contributed cash of $500,000 in return for 50 percent of the corporation's stock. Sally contributed a building and land with the following fair market values and adjusted basis in return for 50 percent of the corporation's stock. To equalize the exchange, Empire Corporation paid Sally $100,000 in addition to her stock. a. What amount of gain or loss does Sally realize on the formation of the corporation? b. What amount of gain or loss, if any, does she recognize? c. What is Sally's tax basis in the stock she receives in return for her contribution of property to the corporation? d. What adjusted basis does Empire Corporation take in the land and building received from Sally?

Mandel transferred property to his new corporation in a §351 transaction. Among the several properties transferred by Mandel was land with a fair market value of $200,000 and a tax basis of $250,000. In all cases, 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.

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

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

Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $100,000. What amount of gain or loss does Pennsylvania recognize in the complete liquidation?

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

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 $205,000. Julian's tax basis in the Lemon stock was $410,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

Carlos transfers property with a tax basis of $865 and a fair market value of $1,185 to a corporation in exchange for stock with a fair market value of $975 and $71 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $139 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

The definition of property as it relates to a §351 transaction includes money.

Which of the following statements best describes the tax consequences of a §338 election?

Keegan 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 equaled the fair market value of the assets transferred to the corporation by Keegan. Assuming the gain or loss realized in this problem is deferred under §351, what is Keegan's basis in the stock he receives in his corporation?

Paladin Corporation transferred its 90 percent interest to Furman Company as part of a complete liquidation of the company. In the exchange, Paladin received land with a fair market value of $1,000,000. The corporation's basis in the Furman Company stock was $400,000. The land had a basis to Furman Company of $200,000. What amount of gain does Paladin recognize in the exchange and what is its basis in the land it receives?