Exam 4: Corporate Nonliquidating Distributions

Bat Corporation distributes stock rights with a $20,000 FMV to its common stock shareholders.The $20,000 value of the stock rights at the time of distribution is less than 15% of the value of the underlying stock.Which of the following statements is true?

Wills Corporation,which has accumulated a current E&P totaling $70,000,distributes land to its sole shareholder,an individual.The land has an FMV of $75,000 and an adjusted basis of $60,000.The shareholder assumes a $15,000 liability associated with the land.The transaction will have the following tax consequences.

What is a stock redemption? What are some of the reasons for making a stock redemption? Why are some redemptions treated as sales and others as dividends?

Bart,a 50% owner of Atlas Corporation's common stock,receives a distribution of a new class of Atlas preferred stock having a $40,000 FMV.Bart's basis in the Atlas common stock is $30,000.Its FMV is $80,000 on the distribution date.One year later,the corporation redeems the preferred stock for $75,000.At the time the stock was issued,the corporation's current and accumulated E&P was $80,000.At the end of the year of redemption,the current and accumulated E&P is $25,000.No other distributions out of E&P were made in the year of redemption.What are the tax consequences of the transaction?

Peach Corporation was formed four years ago.Its current E&P (or E&P deficit)and distributions for the most recent four years are as follows: What is Peach's accumulated E&P at the beginning of 2006,2007,2008,and 2009?

Checkers Corporation has a single class of common stock outstanding.Bert owns 100 shares,which he purchased five years ago for $200,000.In the current year,when the stock is worth $2,500 per share,Checkers Corporation declares a 10% stock dividend payable in common stock.Bert receives ten additional shares on December 10 of the current year.On January 25 of next year he sells all ten shares for $30,000. a)How much income must Bert recognize when he receives the stock dividend? b)How much gain or loss must Bert recognize when he sells the ten shares he received as a stock dividend?

John owns 70% of the May Corporation stock and 60% of the June Corporation stock.John sells one-half of his interest in May Corporation to June Corporation for $45,000.The E&P accounts of May and June are $25,000 and $35,000,respectively.The result would be that

Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year.Current E&P is $20,000.During the year,the corporation makes the following distributions to its sole shareholder who has a $22,000 basis for her stock. The treatment of the $15,000 August 1 distribution would be

A partial liquidation of a corporation is treated as a dividend in the case of a corporate shareholder.

Ace Corporation has a single class of stock outstanding.Alan owns 200 shares of the common stock,which he purchased for $50 per share two years ago.On April 10,of the current year,Ace Corporation distributes to its shareholders one right to purchase a share of common stock at $60 per share for each share of common stock held.At the time of the distribution,the common stock is worth $75 per share,and the rights are worth $15 per right.On September 10,Alan sells 100 rights for $2,000 and exercises the remaining 100 rights.He sells 60 of the shares acquired with the rights for $80 each on November 10. a)What is the amount and character of income Alan recognizes when he receives the rights? b)What is the amount and character of gain or loss Alan recognizes when he sells the rights? c)What is the amount and character of gain or loss Alan recognizes when he exercises the rights? d)What is the amount and character of gain or loss Alan recognizes when he sells the new common stock? e)What basis does Alan have in his remaining shares?

Which of the following statements best describes a bootstrap acquisition?

When is E&P measured for purposes of determining whether a distribution is a dividend?

Which of the following statements is not true about redemptions?

Family Corporation,a corporation controlled by Buddy's family,redeems all of Buddy's stock.For the redemption to be treated as a sale,which one of the following conditions must be met?

Peter owns all 100 shares of Parker Corporation's stock.His basis in the stock is $30,000.Parker Corporation has $300,000 of E&P.Parker Corporation redeems 25 of Peter's shares for $90,000.What are the consequences to Peter and to Parker Corporation?

Identify which of the following statements is false.

Perch Corporation has made paint and paint brushes for the past ten years.Perch Corporation is owned equally by Arnold,an individual,and Acorn Corporation.Perch Corporation has $100,000 of accumulated and current E&P.Both Arnold and Acorn Corporation have a basis in their stock of $10,000.Perch Corporation discontinues the paint brush operation and distributes assets worth $10,000 each to Arnold and Acorn Corporation in redemption of 20% of their stock.Due to the distribution,Arnold and Acorn Corporation must report:

Blast Corporation manufactures purses and make-up kits.The corporation decides to quit manufacturing purses and distributes the assets associated with this division to its shareholders.The distribution of the these assets will be treated as a partial liquidation if

Grant Corporation sells land (a noninventory item)with a basis of $57,000 for $100,000.Nichole will be paid on an installment basis in five equal annual payments,starting in the current year.The E&P for the year of sale will be increased as a result of the sale (excluding federal income taxes)by

Nichol Corporation has 100 shares of common stock outstanding.Nichol repurchased all of Ned's 30 shares for $35,000 cash during the current year.Ned received the shares as a gift from his mother three years ago.They have a basis to him of $16,000.Nichol Corporation has $100,000 in current and accumulated E&P.Ned's mother owns 40 of the remaining shares;unrelated individuals own the other 30 shares.What tax issues should be considered with respect to the corporation's purchase of Ned's shares?