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Exam 8: Corporate Formation, Reorganization, and Liquidation

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Question 21

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

A) True
B) False

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Question 22

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M Corporation assumes a $200 liability attached to property transferred to it by Jane in a §351 transaction. In all cases, the assumed liability will be treated as boot received by Jane.

A) True
B) False

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Question 23

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A taxpayer who receives nonvoting stock is not eligible for deferral in a §351 exchange.

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 $200,000. Julian's tax basis in the Lemon stock was $400,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

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

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?

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?

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.

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 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?

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?

Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Incorporated. 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 Gary recognize in the complete liquidation?

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

Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Incorporated. 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 Laura recognize in the complete liquidation and what is Laura's tax basis in the building and land after the complete liquidation?

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?

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

In December 2019, Jill incurred a $50,000 loss on the sale of Crown Corporation stock that she purchased in 2010. The stock satisfied all of the §1244 stock requirements at the time of issue. Jill is married to Jack and together they file a joint tax return. How much of the loss can Jack and Jill deduct in 2019, assuming they do not have capital gains in the current or prior years, and what is the character of the loss?

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

Amy transfers property with a tax basis of $900 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $450 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is Amy's tax basis in the stock received in the exchange?