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Exam 19: Corporate Formation, Reorganization, and Liquidation

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Question 31

True/False

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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 32

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A taxpayer must receive voting common stock to be eligible for deferral in a section 351exchange.

A) True
B) False

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Question 33

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Which of the following statements does not describe a requirement that must be met in a tax-deferred forward triangular merger?

Jalen transferred his 10 percent interest to Wolverine Company as part of a completeliquidation of the company. In the exchange, he received land with a fair market value of$100,000. Jalen's basis in the Wolverine stock was $50,000. The land had a basis to Wolverine Company of $80,000. What amount of gain does Jalen recognize in the exchange and what is his basis in the land he receives?

Gain or loss is always recognized when realized for tax purposes.

Camille transfers property with a tax basis of $800 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $850 and $350 in cash in a transaction that qualifies for deferral under section 351. Camille also incurred sellingexpenses of $100. What is the amount realized by Camille in the exchange?

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

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

Rich and Rita propose to have their corporation, Big Blue, acquire another corporation, Green Company, in a stock-for-stock Type B acquisition. The sole shareholder of Green, Mark Dee, will receive $500,000 of Big Blue voting stock in the transaction. Mark's tax basis in his Green stock is$100,000. What is Mark's tax basis in the Big Blue stock he receives in the exchange and what isBig Blue's basis in the Green stock it receives in return?

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

Casey transfers property with a tax basis of $2,000 and a fair market value of $5,000 to a corporation in exchange for stock with a fair market value of $4,000 and $400 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $600 on the property transferred. Casey also incurred selling expenses of$300. What is the amount realized by Casey in the exchange?

Type A reorganizations involve the transfer of assets of targets corporation via a merger or consolidation.

To meet the control test under section 351, taxpayers transferring property to acorporation must in aggregate own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock after the transfer.

The tax basis of property received by a noncorporate shareholder in a complete liquidation will be the property's fair market value.

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

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 betax-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?

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

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?

Roy transfers property with a tax basis of $800 and a fair market value of $500 to acorporation in exchange for stock with a fair market value of $400 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed aliability of $50 on the property transferred. What is Roy's tax basis in the stock receivedin the exchange?

Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. Afterliquidating 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 Mike recognize in the complete liquidation?