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Exam 8: Corporate Formation, Neorganization, and Liquidation

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Question 41

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

A) Buyers generally prefer to buy assets because they can take a tax basis in the assets acquired equal to the assets' fair market value.
B) Buyers generally prefer to buy stock because they can take a tax basis in the underlying assets of the company acquired equal to the assets' fair market value.
C) Sellers generally prefer to sell assets in a tax-deferred reorganization to avoid higher tax rates imposed on gains from the sale of non-capital assets.
D) Sellers generally prefer to sell stock because they can recognize capital gain on the sale taxed at preferential rates.

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

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Question 42

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Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?

A) All complete liquidations are taxable to the shareholders.
B) Complete liquidations are taxable to all individual shareholders.
C) Complete liquidations are taxable to all corporate shareholders owning stock of the liquidated corporation representing less than 80 percent or more of voting power and value.
D) Complete liquidations are tax deferred to corporate shareholders owning stock of the liquidated corporation representing 80 percent or more of voting power and value.

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

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Question 43

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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.

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 $500,000 plus $500,000 in cash.Celeste's tax basis in the Supply Chain stock was $1,200,000.What amount of loss does Celeste recognize in the exchange and what is her basis in the Marketing 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 $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 Michelle recognize in the complete liquidation and what is her tax basis in the building and land after the complete liquidation?

Mandel transferred property to his new corporation in a section 351 transaction.Among the several properties transferred by Mandel was land with a fair market value of $200,000 and a tax basis of $250,000.In all cases,the corporation will always take a tax basis in the land of $200,000 to prevent the "built-in loss" from being transferred from Mandel to the corporation.

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 $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 Pennsylvania recognize in the complete liquidation?

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

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

Gary and Laura decided to liquidate their jointly owned corporation,Amelia,Inc.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?

Tristan transfers property with a tax basis of $900 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $900 and $200 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?

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?

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?

A liquidation of a corporation always is a taxable event for the shareholder(s)of the liquidated corporation.

April transferred 100 percent of her stock in June Company to March Corporation in a taxable merger.In exchange she received stock in March with a fair market value of $400,000 plus $1,200,000 in cash.April's tax basis in the June stock was $2,000,000.What amount of loss does April recognize in the exchange and what is her basis in the March stock she receives?

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?

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 Jim. a.What amount of income,gain or loss does Jim realize on the formation of the corporation? b.What amount of gain or loss,if any,does he recognize? c.What is Jim's tax basis in the stock he receives in return for his contribution of services to the corporation?

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?

Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation in exchange for stock with a fair market value of $650 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?