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Exam 19: Corporate Formation, Reorganization, and Liquidation

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Question 41

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Which of the following statements best describes the tax results to a shareholder in a §351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

A) Liabilities assumed by a corporation on a §351 transfer are always treated as boot.
B) Liabilities assumed by a corporation on a §351 transfer are never treated as boot.
C) Liabilities assumed by a corporation on a §351 transfer are treated as boot if the total liabilities assumed exceed the total basis of the assets transferred.
D) Liabilities assumed by a corporation on a §351 transfer are treated as boot if there is no business purpose for the assumption of the liabilities by the corporation.

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

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Question 42

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Which of the following statements best describes the impact of receiving boot in a §351 transaction?

A) Boot received has no impact on the recognition of gain or loss realized in a §351 transaction.
B) Boot received causes gain realized to be recognized, but not loss realized.
C) Boot received causes loss realized to be recognized, but not gain realized.
D) Boot received causes gain or loss realized to be recognized.

E) B) and C)
F) None of the above

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Question 43

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Robin transferred her 60 percent interest to Cardinal Company as part of a complete liquidation of the company. In the exchange, she received land with a fair market value of $995,000. Robin's basis in the Cardinal stock was $1,027,500. The land had a basis to Cardinal Company of $1,040,000. What amount of loss does Cardinal recognize in the exchange and what is Robin's basis in the land she receives? The distribution was non-pro rata to Robin, a related person.

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 $385,000. Julian's tax basis in the Lemon stock was $770,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

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

Sue transferred 100 percent of her stock in Oakland Company to Applegate Corporation in a Type A merger. In exchange she received stock in Applegate with a fair market value of $800,000 plus $400,000 in cash. Sue's tax basis in the Oakland stock was $1,500,000. What amount of gain or loss does Sue recognize in the exchange and what is her basis in the Applegate stock she receives?

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing sole shareholder?

A stock-for-stock Type B reorganization will be tax-deferred to a target corporation shareholder as long as at least 80 percent of the consideration received is in the form of stock of the acquirer.

In December 2019, Zeb incurred a $117,500 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 $57,750 in 2019. Zeb is single. How much of the loss can Zeb deduct in 2019, and what is the character of the loss?

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

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

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

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

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.

Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?

Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received by the shareholders of the target corporation in the transaction.

Which of the following statements best describes the tax benefits that arise from the sale of §1244 stock?

Packard Corporation transferred its 100 percent interest to State Company as part of a complete liquidation of the company. In the exchange, Packard received land with a fair market value of $300,000. Packard's basis in the State stock was $600,000. The land had a basis to State Company of $500,000. What amount of loss does State recognize in the exchange and what is Packard's basis in the land it receives?