Question 1

Identify which of the following statements is true.

Accepted Answer

A) Section 351 applies exclusively to the formation of a new corporation. 
B) Section 351 applies to property transfers in exchange for stock. 
C) Section 351 only applies to individual transferors. 
D) All of the above are false. 
A) Section 351 applies exclusively to the formation of a new corporation. 
B) Section 351 applies to property transfers in exchange for stock. 
C) Section 351 only applies to individual transferors. 
D) All of the above are false.

Question 2

Under Sec.351,corporate stock may include all of the following except

Accepted Answer

A) voting stock. 
B) nonvoting stock. 
C) stock warrants. 
D) qualified preferred stock. 
A) voting stock. 
B) nonvoting stock. 
C) stock warrants. 
D) qualified preferred stock.

Question 3

Identify which of the following statements is true.

Accepted Answer

A) C corporation operating losses are deductible by the individual shareholders. 
B) If a C corporation does not distribute its income to its shareholders annually,double taxation cannot occur. 
C) Capital losses incurred by a C corporation can be used to offset the corporation's ordinary income. 
D) All of the above are false. 
A) C corporation operating losses are deductible by the individual shareholders. 
B) If a C corporation does not distribute its income to its shareholders annually,double taxation cannot occur. 
C) Capital losses incurred by a C corporation can be used to offset the corporation's ordinary income. 
D) All of the above are false.

Question 4

Identify which of the following statements is true.

Accepted Answer

A) To determine a shareholder's basis in a single class of stock received in a Sec.351 exchange,the FMV of the stock received must be known. 
B) If more than one asset is transferred by the transferor in a Sec.351 nonrecognition transaction,the transferor is assumed to have received a proportionate share of the stock,cash,and other boot property for each property transferred based upon the assets' relative FMVs. 
C) The transferor's basis for any noncash boot property received in a Sec.351 transaction is the boot's FMV reduced by any unrecognized gain. 
D) All of the above are false. 
A) To determine a shareholder's basis in a single class of stock received in a Sec.351 exchange,the FMV of the stock received must be known. 
B) If more than one asset is transferred by the transferor in a Sec.351 nonrecognition transaction,the transferor is assumed to have received a proportionate share of the stock,cash,and other boot property for each property transferred based upon the assets' relative FMVs. 
C) The transferor's basis for any noncash boot property received in a Sec.351 transaction is the boot's FMV reduced by any unrecognized gain. 
D) All of the above are false.

Question 5

Beth transfers an asset having an FMV of $200,000 and an adjusted basis of $150,000 to ABC Corporation in a Sec.351 transaction.Beth receives in exchange ABC common stock having an FMV of $175,000 and Zeus Corporation common stock (a capital asset)having an FMV of $25,000 and a basis of $10,000 to ABC Corporation.ABC Corporation must recognize

Accepted Answer

A) no gain. 
B) a $15,000 capital gain. 
C) a $25,000 capital gain. 
D) a $50,000 capital gain. 
A) no gain. 
B) a $15,000 capital gain. 
C) a $25,000 capital gain. 
D) a $50,000 capital gain.

Question 6

Cherie transfers two assets to a newly-created corporation.The first asset has an adjusted basis of $40,000 and an FMV of $50,000.The second asset has an adjusted basis of $35,000 and an FMV of $25,000.Cherie receives stock with an FMV of $66,000 and $9,000 cash.Cherie must recognize a gain of

Accepted Answer

A) $10,000. 
B) $6,000. 
C) $5,000. 
D) $4,000. 
A) $10,000. 
B) $6,000. 
C) $5,000. 
D) $4,000.

Question 7

Identify which of the following statements is true.

Accepted Answer

A) The definition of stock under Sec.351 includes stock rights and warrants. 
B) The receipt of property other than stock by the transferor will trigger the recognition of gain or loss under Sec.351. 
C) The character of the gain recognized by the transferor when boot is received in a Sec.351 transaction depends on the type of boot received. 
D) All of the above are false. 
A) The definition of stock under Sec.351 includes stock rights and warrants. 
B) The receipt of property other than stock by the transferor will trigger the recognition of gain or loss under Sec.351. 
C) The character of the gain recognized by the transferor when boot is received in a Sec.351 transaction depends on the type of boot received. 
D) All of the above are false.

Question 8

The check-the-box regulations permit an LLC to be taxed as a C corporation.

Accepted Answer

A) True 
 B)False

Question 9

For Sec.351 purposes,the term "property" does not include

Accepted Answer

A) cash. 
B) accounts receivable. 
C) inventory. 
D) services rendered. 
A) cash. 
B) accounts receivable. 
C) inventory. 
D) services rendered.

Question 10

Brad forms Vott Corporation by contributing equipment,which has a basis of $50,000 and an FMV of $40,000 in exchange for Vott stock.Brad also contributes $5,000 in cash.If the transaction meets the Sec.351 control and ownership tests,what are the tax consequences to Brad?

Accepted Answer

A) He recognizes a $5,000 loss. 
B) He recognizes a $5,000 gain and a $10,000 loss. 
C) He recognizes neither a gain nor a loss. 
D) He recognizes a $10,000 loss. 
A) He recognizes a $5,000 loss. 
B) He recognizes a $5,000 gain and a $10,000 loss. 
C) He recognizes neither a gain nor a loss. 
D) He recognizes a $10,000 loss.

Question 11

Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec.351 transaction.Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV.Ralph's basis in the stock is

Accepted Answer

A) $75,000. 
B) $70,000. 
C) $65,000. 
D) $60,000. 
A) $75,000. 
B) $70,000. 
C) $65,000. 
D) $60,000.

Question 12

Demarcus is a 50% partner in the DJ partnership.DJ has taxable income for the year of $200,000.Demarcus received a $75,000 distribution from the partnership.What amount of income related to DJ must Demarcus recognize?

Accepted Answer

A) $200,000 
B) $75,000 
C) $100,000 
D) $37,500 
A) $200,000 
B) $75,000 
C) $100,000 
D) $37,500

Question 13

Sarah transfers property with an $80,000 adjusted basis and a $100,000 FMV to Super Corporation in a Sec.351 transaction.Sarah receives stock with an $85,000 FMV and a short-term note with a $15,000 FMV.Sarah's basis in the stock is

Accepted Answer

A) $100,000. 
B) $95,000. 
C) $85,000. 
D) $80,000. 
A) $100,000. 
B) $95,000. 
C) $85,000. 
D) $80,000.

Question 14

Chris transfers land with a basis of $40,000 to Webb Corporation in exchange for 100% of Webb's stock.At the date of the transfer,the land had a $30,000 fair market value.Chris makes an election to reduce his basis in Webb's stock to $30,000,so Webb's basis in the land is

Accepted Answer

A) $30,000. 
B) $35,000. 
C) $40,000. 
D) none of the above 
A) $30,000. 
B) $35,000. 
C) $40,000. 
D) none of the above

Question 15

Matt and Sheila form Krupp Corporation.Matt contributes property with an FMV of $55,000 and a basis of $35,000.Sheila contributes property with an FMV of $75,000 and a basis of $40,000.Matt sells his stock to Paul shortly after the exchange.The transaction will

Accepted Answer

A) not qualify under Sec.351. 
B) qualify under Sec.351 if Matt can show that the sale to Paul was not part of a prearranged plan. 
C) qualify with respect to Sheila under Sec.351 whether Matt qualifies or not. 
D) qualify under Sec.351 only if an advance ruling has been obtained. 
A) not qualify under Sec.351. 
B) qualify under Sec.351 if Matt can show that the sale to Paul was not part of a prearranged plan. 
C) qualify with respect to Sheila under Sec.351 whether Matt qualifies or not. 
D) qualify under Sec.351 only if an advance ruling has been obtained.

Question 16

A shareholder's basis in stock received in a Sec.351 transaction is

Accepted Answer

A) increased by the gain recognized by the corporation. 
B) decreased by the gain recognized by the transferor. 
C) decreased by liabilities assumed by the corporation. 
D) increased by the FMV of boot received from the corporation. 
A) increased by the gain recognized by the corporation. 
B) decreased by the gain recognized by the transferor. 
C) decreased by liabilities assumed by the corporation. 
D) increased by the FMV of boot received from the corporation.

Question 17

Identify which of the following statements is true.

Accepted Answer

A) The transferee corporation's acquisition or assumption of liabilities in excess of the total adjusted bases of the properties transferred by a transferor results in a gain recognition by the transferor. 
B) When a transferor exchanges a mortgaged property under Sec.351 and the amount of the mortgage is greater than the transferor's basis in the property,the transferor's basis in the stock received will be equal to the basis the transferor had in the mortgaged property. 
C) When forming a corporation,the accounts payable of a transferor's business are not liabilities for gain computation purposes if the transferor's business uses the accrual method of accounting. 
D) All of the above are false. 
A) The transferee corporation's acquisition or assumption of liabilities in excess of the total adjusted bases of the properties transferred by a transferor results in a gain recognition by the transferor. 
B) When a transferor exchanges a mortgaged property under Sec.351 and the amount of the mortgage is greater than the transferor's basis in the property,the transferor's basis in the stock received will be equal to the basis the transferor had in the mortgaged property. 
C) When forming a corporation,the accounts payable of a transferor's business are not liabilities for gain computation purposes if the transferor's business uses the accrual method of accounting. 
D) All of the above are false.

Question 18

In accordance with the rules that apply to corporate formation,which one of the following features does not make an issue of preferred stock "nonqualified"?

Accepted Answer

A) The shareholder can require the corporation to redeem the stock. 
B) The dividend rate on the stock may not vary with interest rates,commodity prices,or other similar indices. 
C) The corporation is either required to redeem the stock or is likely to exercise a right to redeem the stock. 
D) The stock is limited and preferred as to dividends. 
A) The shareholder can require the corporation to redeem the stock. 
B) The dividend rate on the stock may not vary with interest rates,commodity prices,or other similar indices. 
C) The corporation is either required to redeem the stock or is likely to exercise a right to redeem the stock. 
D) The stock is limited and preferred as to dividends.

Question 19

Jeremy operates a business as a sole proprietorship.The proprietorship uses the cash method of accounting.He decides to incorporate and transfers the assets and liabilities of the sole proprietorship to the newly formed corporation in exchange for its stock.The assets,which include $10,000 of accounts receivable with a zero basis,have a basis of $20,000 and an FMV of $40,000.The liabilities include accounts payable of $12,000,which will be deductible when paid,and a note payable on medical equipment of $7,000.Jeremy's basis for his stock is

Accepted Answer

A) $40,000. 
B) $20,000. 
C) $13,000. 
D) $8,000. 
A) $40,000. 
B) $20,000. 
C) $13,000. 
D) $8,000.

Question 20

The transferor's holding period for any boot property received in a Sec.351 stock exchange

Accepted Answer

A) includes the holding period for the boot transferred. 
B) begins on the day after the exchange. 
C) begins on the day of the exchange. 
D) is the same as the holding period of the stock received in the exchange. 
A) includes the holding period for the boot transferred. 
B) begins on the day after the exchange. 
C) begins on the day of the exchange. 
D) is the same as the holding period of the stock received in the exchange.

Exam 2: Corporate Formations and Capital Structure

Identify which of the following statements is true.

Under Sec.351,corporate stock may include all of the following except

Identify which of the following statements is true.

Identify which of the following statements is true.

Cherie transfers two assets to a newly-created corporation.The first asset has an adjusted basis of $40,000 and an FMV of $50,000.The second asset has an adjusted basis of $35,000 and an FMV of $25,000.Cherie receives stock with an FMV of $66,000 and $9,000 cash.Cherie must recognize a gain of

Identify which of the following statements is true.

The check-the-box regulations permit an LLC to be taxed as a C corporation.

For Sec.351 purposes,the term "property" does not include

Brad forms Vott Corporation by contributing equipment,which has a basis of $50,000 and an FMV of $40,000 in exchange for Vott stock.Brad also contributes $5,000 in cash.If the transaction meets the Sec.351 control and ownership tests,what are the tax consequences to Brad?

Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec.351 transaction.Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV.Ralph's basis in the stock is

Demarcus is a 50% partner in the DJ partnership.DJ has taxable income for the year of $200,000.Demarcus received a $75,000 distribution from the partnership.What amount of income related to DJ must Demarcus recognize?

Sarah transfers property with an $80,000 adjusted basis and a $100,000 FMV to Super Corporation in a Sec.351 transaction.Sarah receives stock with an $85,000 FMV and a short-term note with a $15,000 FMV.Sarah's basis in the stock is

Chris transfers land with a basis of $40,000 to Webb Corporation in exchange for 100% of Webb's stock.At the date of the transfer,the land had a $30,000 fair market value.Chris makes an election to reduce his basis in Webb's stock to $30,000,so Webb's basis in the land is

Matt and Sheila form Krupp Corporation.Matt contributes property with an FMV of $55,000 and a basis of $35,000.Sheila contributes property with an FMV of $75,000 and a basis of $40,000.Matt sells his stock to Paul shortly after the exchange.The transaction will

A shareholder's basis in stock received in a Sec.351 transaction is

Identify which of the following statements is true.

In accordance with the rules that apply to corporate formation,which one of the following features does not make an issue of preferred stock "nonqualified"?

The transferor's holding period for any boot property received in a Sec.351 stock exchange

Tax Research

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Business Expenses and Deferred Compensation

Itemized Deductions

Losses and Bad Debts

Depreciation,cost Recovery,amortization,and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods,tax Credits,and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

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