Question 1

For purposes of the application of § 304 (redemptions through the use of related corporations),a shareholder must own (direct or indirectly)at least 80% of the stock of two more corporations.

Accepted Answer

A) True 
 B)False

Question 2

For purposes of the § 338 election,a corporation must acquire,in a taxable transaction,at least 50% of the stock (voting power and value)of another corporation within an 12-month period.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

Related-party loss limitation: The provision disallows recognition of losses realized on distributions to related parties when either (1)the distribution is not pro rata or (2)the distribution consists of disqualified property.Section 267 provides the definition of "related party" for purposes of this limitation.The § 267 stock attribution rules are similar to the § 318 attribution rules.One exception,however,is that the family attribution rule under § 267 includes stock owned by a sibling.A pro rata distribution is one where each shareholder receives his or her proportionate share of the corporate asset distributed."Disqualified property" is property that is acquired by the corporation in a § 351 or contribution to capital transaction during the 5-year period ending on the date of the distribution.
Built-in loss limitation: The provision disallows recognition of losses realized on the sale,distribution,or exchange of property that was transferred to a corporation shortly before the corporation was liquidated and such property had a built-in loss (fair market value less than basis)on the date of such transfer.The limitation applies to property that was acquired by the corporation in a § 351 or contribution to capital transaction and such acquisition was part of a plan whose principal purpose was to recognize a loss on that property by the corporation.A tax avoidance purpose is presumed in the case of transfers occurring within two years of the adoption of a plan of liquidation.A business purpose for the transfer can rebut the two-year presumptive rule,and the loss limitation will rarely apply to transfers occurring more than 2 years before liquidation.The amount of loss that is disallowed under the built-in loss limitation is the amount of the built-in loss,after consideration is given to the basis step-down rules applicable under § 362(e)(2)(see Chapter 4).
Subsidiary distributions to parent in a § 332 liquidation: The provision disallows recognition of losses (and gains)realized on distributions of property to its parent corporation when § 332 applies.Section 332 applies when: (1)the parent owns 80% (voting and value)of the stock of the subsidiary; (2)the subsidiary distributes all of its property in complete cancellation of its stock within the taxable year or within three years from the close of the tax year in which the first distribution occurred;and (3)the subsidiary is solvent.
Subsidiary distributions to minority shareholders in a § 332 liquidation: The provision disallows recognition of losses realized on distributions of property to minority shareholders in a liquidation otherwise governed by § 332.(The rules for application of § 332 are discussed above. )

Question 4

In comparing a qualifying stock redemption with a complete liquidation,which of the following statements is incorrect?

Accepted Answer

A)  Liquidations and qualifying stock redemptions parallel each other in terms of the effect that E & P has on the nature of the gain or loss recognized by the shareholder.
B)  The basis of property acquired in a qualifying stock redemption is equal to the distributing corporation's basis in the property,whereas the basis of property acquired in a complete liquidation is equal to its fair market value on the date of distribution.
C)  Both a qualifying stock redemption and a complete liquidation produce sale or exchange treatment to the shareholder.
D)  A corporation will recognize gain upon the distribution of appreciated property for both a qualifying stock redemption and a complete liquidation,but a corporation will recognize loss upon a distribution of depreciated property only for a complete liquidation.
E)  Section 267 disallows recognition of losses between related parties in a qualifying stock redemption but not in a complete liquidation.F) B) and E)
G) C) and E)

Question 5

Magenta Corporation acquired land in a § 351 exchange one year ago.The land had a basis of $400,000 and a fair market value of $480,000 on the date of the transfer.Magenta Corporation has two equal shareholders,Mark and Megan,who are father and daughter.Magenta Corporation adopts a plan of liquidation in the current year.On this date,the land has decreased in value to $360,000.Magenta Corporation sells the land for $360,000 and distributes the proceeds pro rata to Mark and Megan.What amount of loss may Magenta Corporation recognize on the sale of the land?

Accepted Answer

A)  $0.
B)  $20,000.
C)  $40,000.
D)  $130,000.
E)  None of the above.F) B) and E)
G) C) and E)

Question 6

In a not essentially equivalent redemption [§ 302(b)(1)],the family attribution rules of § 318 apply.

Accepted Answer

A) True 
 B)False

Question 7

Legal dissolution under state law is not required for a liquidation to be complete for tax purposes.

Accepted Answer

A) True 
 B)False

Question 8

The ordinary income resulting from a sale of § 306 stock is taxed at the preferential rate applicable to dividend income.

Accepted Answer

A) True 
 B)False  True

Question 9

Crow Corporation has 800 shares of stock outstanding.Ted owns 300 shares,Ted's mother owns 100 shares,Ted's sister owns 80 shares,and Ted's granddaughter owns 120 shares.Bluebird Corporation owns the remaining 200 shares of stock in Crow.Ted owns 30% of the stock in Bluebird Corporation.In applying the § 318 stock attribution rules,how many shares does Ted own in Crow Corporation?

Accepted Answer

A)  300.
B)  400.
C)  520.
D)  550.
E)  None of the above.F) C) and D)
G) C) and E) C

Question 10

If a parent corporation makes a § 338 election,the subsidiary corporation need not be liquidated.

Accepted Answer

A) True 
 B)False

Question 11

Swan Corporation incurred $10,000 of accounting fees and $15,000 of legal fees in connection with the redemption of stock from its shareholders.Swan can deduct the accounting fees ($10,000),but not the legal fees ($15,000),as trade or business expenses under § 162.

Accepted Answer

A) True 
 B)False

Question 12

Brenda owns 900 shares of Eagle Corporation stock at a time when Eagle has 1,500 shares of stock outstanding.The remaining shareholders are unrelated to Brenda.What is the minimum number of shares Eagle must redeem from Brenda so that the transaction will qualify as a disproportionate redemption?

Accepted Answer

A)  180 shares.
B)  347 shares.
C)  375 shares.
D)  720 shares.
E)  None of the above.F) D) and E)
G) A) and C)

Question 13

Joe owns 100% of Green Corporation (E & P of $500,000) and 100% of Navy Corporation (E & P of $400,000) .Joe sells 100 shares in Green (basis of $40,000) to Navy for $70,000,its fair market value.Joe purchased the stock in Green six years ago.Joe has:

Accepted Answer

A)  A long-term capital gain of $30,000.
B)  A long-term capital gain of $70,000.
C)  Dividend income of $30,000.
D)  Dividend income of $70,000.
E)  None of the above.F) A) and B)
G) C) and E)

Question 14

Pursuant to a qualifying stock redemption,Redbird Corporation (E & P of $400,000) transfers land held for investment purposes to Bob,a 10% shareholder.On the date of the distribution,Redbird has a basis of $200,000 in the land and its fair market value is $150,000.Bob has a basis of $40,000 in the shares redeemed.With respect to the redemption:

Accepted Answer

A)  Bob will recognize a gain of $110,000.
B)  Bob will have $150,000 of dividend income.
C)  Bob will have a $200,000 basis in the land.
D)  Redbird Corporation will recognize a capital loss of $50,000.
E)  None of the above.F) A) and B)
G) B) and C)

Question 15

Yellow Corporation transfers land (basis of $210,000,fair market value of $300,000) to Joe,a shareholder,to carry out a qualifying stock redemption.The land is distributed subject to a $320,000 liability.With respect to the redemption:

Accepted Answer

A)  Yellow Corporation will recognize a gain of $20,000.
B)  Yellow Corporation will recognize a gain of $90,000.
C)  Yellow Corporation will recognize a gain of $110,000.
D)  Yellow Corporation will not recognize a gain.
E)  None of the above.F) A) and E)
G) A) and B)

Question 16

The stock of Brown Corporation (E & P of $680,000) is owned as follows: 95% by Black Corporation (basis of $380,000) ,and 5% by Susanna (basis of $20,000) .Both shareholders purchased their shares in Brown five years ago.In the current year,Brown Corporation liquidates and distributes land (fair market value of $950,000,basis of $550,000) to Black Corporation,and securities (fair market value of $50,000,basis of $35,000) to Susanna.Which of the following statements is incorrect with respect to the tax consequences resulting from these distributions?

Accepted Answer

A)  Susanna recognizes a $30,000 gain and has a $35,000 basis in the securities.
B)  Brown recognizes no gain on the distribution of the land.
C)  Black recognizes no gain and has a $550,000 basis in the land.
D)  Brown recognizes a $15,000 gain on the distribution of the securities.
E)  None of the above.F) A) and E)
G) C) and D)

Question 17

During the current year,Goldfinch Corporation purchased 100% of the stock of Dove Corporation and made a qualified election under § 338.Which of the following statements is incorrect with respect to the § 338 election?

Accepted Answer

A)  Dove is treated as a new corporation as of the day following the qualified stock purchase date.
B)  If Dove is liquidated,Goldfinch will have a basis in the assets received equal to Dove's basis in the assets.
C)  Goldfinch is treated as having bought all of Dove's assets on the qualified stock purchase date.
D)  Dove can recognize gain or loss as a result of the § 338 election.
E)  None of the above.F) A) and E)
G) A) and B)

Question 18

On April 7,2009,Crow Corporation acquired land in a transaction that qualified under § 351.The land had a basis of $480,000 to the contributing shareholder and a fair market value of $350,000.Assume that the shareholder also transferred equipment (basis of $50,000,fair market value of $200,000) in the same § 351 exchange.Crow Corporation adopted a plan of liquidation on October 6,2010.On December 8,2010,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 $300,000 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)  $50,000.
C)  $180,000.
D)  $230,000.
E)  None of the above.F) C) and D)
G) A) and B)

Question 19

The stock in Black Corporation is owned entirely by Nancy (80%) and Wanda (20%) ,mother and daughter.Three years ago,Nancy contributed land (basis of $200,000,fair market value of $250,000) to Black Corporation in a transaction that qualified under § 351.In the current year and pursuant to a complete liquidation of Black,the land is distributed proportionately to Nancy and Wanda.At the time of the liquidating distribution,the land had a fair market value of $100,000.What amount of loss will Black Corporation recognize on the distribution of the land?

Accepted Answer

A)  $20,000.
B)  $80,000.
C)  $100,000.
D)  $150,000.
E)  None of the above.F) C) and D)
G) B) and E)

Question 20

The gross estate of Raul,decedent who died in 2009,includes 700 shares of stock of Orange Corporation (basis to Raul of $400,000,fair market value on date of death of $3 million).The estate will incur $2 million of death taxes and funeral and administration expenses,and the adjusted gross estate is $8 million.Denise,Raul's daughter and sole heir of his estate,owns the remaining 300 shares of Orange Corporation's (1,000)shares outstanding.In the current year,Orange (E & P of $4 million)redeems all of the estate's 700 shares for $3 million.What are the tax consequences of the redemption to Raul's estate?

Accepted Answer

A redemption to pay death taxes under § ...

Exam 6: Corporations: Redemptions and Liquidations

For purposes of the application of § 304 (redemptions through the use of related corporations),a shareholder must own (direct or indirectly)at least 80% of the stock of two more corporations.

Correct Answer
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For purposes of the § 338 election,a corporation must acquire,in a taxable transaction,at least 50% of the stock (voting power and value)of another corporation within an 12-month period.

Correct Answer
verified

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

In comparing a qualifying stock redemption with a complete liquidation,which of the following statements is incorrect?

Correct Answer
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Correct Answer
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In a not essentially equivalent redemption [§ 302(b)(1)],the family attribution rules of § 318 apply.

Correct Answer
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Legal dissolution under state law is not required for a liquidation to be complete for tax purposes.

Correct Answer
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The ordinary income resulting from a sale of § 306 stock is taxed at the preferential rate applicable to dividend income.

Correct Answer
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True

Correct Answer
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C

If a parent corporation makes a § 338 election,the subsidiary corporation need not be liquidated.

Correct Answer
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Swan Corporation incurred $10,000 of accounting fees and $15,000 of legal fees in connection with the redemption of stock from its shareholders.Swan can deduct the accounting fees ($10,000),but not the legal fees ($15,000),as trade or business expenses under § 162.

Correct Answer
verified

Brenda owns 900 shares of Eagle Corporation stock at a time when Eagle has 1,500 shares of stock outstanding.The remaining shareholders are unrelated to Brenda.What is the minimum number of shares Eagle must redeem from Brenda so that the transaction will qualify as a disproportionate redemption?

Correct Answer
verified

Joe owns 100% of Green Corporation (E & P of $500,000) and 100% of Navy Corporation (E & P of $400,000) .Joe sells 100 shares in Green (basis of $40,000) to Navy for $70,000,its fair market value.Joe purchased the stock in Green six years ago.Joe has:

Correct Answer
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Yellow Corporation transfers land (basis of $210,000,fair market value of $300,000) to Joe,a shareholder,to carry out a qualifying stock redemption.The land is distributed subject to a $320,000 liability.With respect to the redemption:

Correct Answer
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Correct Answer
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During the current year,Goldfinch Corporation purchased 100% of the stock of Dove Corporation and made a qualified election under § 338.Which of the following statements is incorrect with respect to the § 338 election?

Correct Answer
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A redemption to pay death taxes under § ...
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Exam 6: Corporations: Redemptions and Liquidations

For purposes of the application of § 304 (redemptions through the use of related corporations),a shareholder must own (direct or indirectly)at least 80% of the stock of two more corporations.

Correct AnswerverifiedShow Answer

For purposes of the § 338 election,a corporation must acquire,in a taxable transaction,at least 50% of the stock (voting power and value)of another corporation within an 12-month period.

Correct AnswerverifiedShow Answer

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

In comparing a qualifying stock redemption with a complete liquidation,which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a not essentially equivalent redemption [§ 302(b)(1)],the family attribution rules of § 318 apply.

Correct AnswerverifiedShow Answer

Legal dissolution under state law is not required for a liquidation to be complete for tax purposes.

Correct AnswerverifiedShow Answer

The ordinary income resulting from a sale of § 306 stock is taxed at the preferential rate applicable to dividend income.

Correct AnswerverifiedTrue

Correct AnswerverifiedC

If a parent corporation makes a § 338 election,the subsidiary corporation need not be liquidated.

Correct AnswerverifiedShow Answer

Swan Corporation incurred $10,000 of accounting fees and $15,000 of legal fees in connection with the redemption of stock from its shareholders.Swan can deduct the accounting fees ($10,000),but not the legal fees ($15,000),as trade or business expenses under § 162.

Correct AnswerverifiedShow Answer

Brenda owns 900 shares of Eagle Corporation stock at a time when Eagle has 1,500 shares of stock outstanding.The remaining shareholders are unrelated to Brenda.What is the minimum number of shares Eagle must redeem from Brenda so that the transaction will qualify as a disproportionate redemption?

Correct AnswerverifiedShow Answer

Joe owns 100% of Green Corporation (E & P of $500,000) and 100% of Navy Corporation (E & P of $400,000) .Joe sells 100 shares in Green (basis of $40,000) to Navy for $70,000,its fair market value.Joe purchased the stock in Green six years ago.Joe has:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Yellow Corporation transfers land (basis of $210,000,fair market value of $300,000) to Joe,a shareholder,to carry out a qualifying stock redemption.The land is distributed subject to a $320,000 liability.With respect to the redemption:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

During the current year,Goldfinch Corporation purchased 100% of the stock of Dove Corporation and made a qualified election under § 338.Which of the following statements is incorrect with respect to the § 338 election?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA redemption to pay death taxes under § ...View AnswerShow Answer

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True

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C

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A redemption to pay death taxes under § ...
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