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Exam 8: Corporate Formation, Reorganization, and Liquidation

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Question 41

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Celeste transferred 100 percent of her stock in Supply Chain Company to Marketing Corporation in a Type A merger. In exchange, she received stock in Marketing with a fair market value of $532,500 plus $532,500 in cash. Celeste's tax basis in the Supply Chain stock was $1,455,000. What amount of loss does Celeste recognize in the exchange and what is her basis in the Marketing stock she receives?

A) $390,000 loss recognized and a basis in Marketing stock of $1,455,000
B) No loss recognized and a basis in Marketing stock of $1,455,000
C) $390,000 loss recognized and a basis in Marketing stock of $922,500
D) No loss recognized and a basis in Marketing stock of $922,500

E) C) and D)
F) A) and B)

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Question 42

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Katarina transferred her 10 percent interest to Spartan Company as part of a complete liquidation of the company. In the exchange, she received land with a fair market value of $200,000. Katarina's basis in the Spartan stock was $100,000. The land had a basis to Spartan Company of $50,000. What amount of gain does Spartan recognize in the exchange and what is Katarina's basis in the land she receives?

A) $100,000 gain recognized by Spartan and a basis in the land of $200,000 to Katarina
B) $150,000 gain recognized by Spartan and a basis in the land of $200,000 to Katarina
C) No gain recognized by Spartan and a basis in the land of $100,000 to Katarina
D) No gain recognized by Spartan and a basis in the land of $50,000 to Katarina

E) A) and B)
F) A) and C)

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Question 43

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

Jasmine transferred 100 percent of her stock in Emerald Company to Jade Corporation in a Type A merger. In exchange she received stock in Jade with a fair market value of $800,000 plus $1,200,000 in cash. Jasmine's tax basis in the Emerald stock was $900,000. What amount of gain does Jasmine recognize in the exchange and what is her basis in the Jade stock she receives?

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

Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $350 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is the amount realized by Roberta in the exchange?

Jasmine transferred 100 percent of her stock in Woodward Company to Jefferson Corporation in a Type A merger. In exchange, she received stock in Jefferson with a fair market value of $600,000 plus $400,000 in cash. Jasmine's tax basis in the Woodward stock was $1,500,000. What amount of loss does Jasmine recognize in the exchange and what is her basis in the Jefferson stock she receives?

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 $286,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $65,500. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $131,000.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?

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?

Which of the following statements about §351 transactions is false?

The requirements for tax deferral in a forward triangular merger and a reverse triangular merger are the same.

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 cash in a transaction that qualifies for deferral under §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?

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?

Phillip 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 was $400,000. The transaction met the requirements to be tax-deferred under §351. a. What amount of net gain or loss does Phillip realize on the transfer of the property to his corporation? b. What amount of gain or loss does Phillip recognize on the transfer of the property to his corporation? c. What is the corporation's adjusted basis in each of the assets received in the exchange?

Antoine transfers property with a tax basis of $535 and a fair market value of $652 to a corporation in exchange for stock with a fair market value of $555 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $97 on the property transferred. What is Antoine's tax basis in the stock received in the exchange?

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 $532,500 plus $532,500 in cash. Simone's tax basis in the Purple stock was $287,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

Don and Marie formed Paper Lilies Corporation on January 2. Don contributed cash of $400,000 in return for 50 percent of the corporation's stock. Marie contributed a building and land with the following fair market values and tax-adjusted bases in return for 50 percent of the corporation's stock. To equalize the exchange, Paper Lilies Corporation paid Marie $50,000 in addition to her stock. a. What amount of gain or loss does Marie realize on the formation of the corporation? b. What amount of gain or loss, if any, does she recognize? c. What is Marie's tax basis in the stock she receives in return for her contribution of property to the corporation? d. What adjusted basis does Paper Lilies Corporation take in the land and building received from Marie?

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?

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

Tax considerationsshould always be the primary reason for structuring an acquisition.