Exam 20: Corporations: Distributions in Complete Liquidation and an Overview of Reorganization

What are the tax consequences of a § 332 liquidation to the parent corporation,subsidiary corporation,and minority shareholder?

One advantage of acquiring a corporation via an asset purchase instead of a stock purchase is that an asset purchase avoids the transfer of the acquired corporation's liabilities.

Acquiring Corporation transfers $500,000 stock and land with a value of $400,000 (basis of $250,000) to Target for most of its assets.The assets not acquired in the "Type A" reorganization are distributed to Target's shareholder,Tia.They are valued at $100,000 (basis of $120,000).Acquiring stock and the land also are distributed to Tia in exchange for her stock in Target.Tia's basis in her stock is $650,000.What is the gain or loss recognized by Acquiring,Target,and Tia on this restructuring? What is Tia's basis in the Acquiring stock?

One similarity between the tax treatment accorded liquidating and nonliquidating distributions is with respect to a shareholder's basis in property received in such distributions.For each type of distribution,the shareholder's basis is the property's fair market value on the date of distribution.

Purple Corporation has two equal shareholders,Joshua and Ellie,who are father and daughter.One year ago,the two shareholders transferred properties to Purple in a § 351 exchange.Joshua transferred land (basis of $600,000,fair market value of $450,000) and securities (basis of $70,000,fair market value of $250,000),while Ellie transferred equipment (basis of $420,000,fair market value of $700,000).In the current year,Purple Corporation adopts a plan of liquidation,sells all of its assets,and distributes the proceeds pro rata to Joshua and Ellie.The only loss realized upon disposition of the properties was with respect to the land that had decreased in value to $310,000 and was sold for this amount.Purple never used the land for any business purpose during the time it was owned by the corporation.What amount of loss can Purple Corporation recognize on the sale of the land?

Which of the following statements is true?

The tax treatment of reorganizations almost parallels the Federal income tax treatment for like-kind exchanges.

Which of the following statements is true concerning all types of tax-free corporate reorganizations?

Liquidation expenses incurred by a corporation are generally deductible as § 162 trade or business expenses.

A shareholder bought 10,000 shares of Coral Corporation for $50,000 several years ago.When the stock is valued at $90,000,Coral redeems the shares in exchange for 5,000 shares of Blush Corporation stock and a $10,000 Blush bond.This transaction meets the requirements of § 368.Which of the following statements is false with regard to this transaction?

The stock of Tan Corporation (E & P of $1.5 million) is owned as follows: 90% by Egret Corporation (basis of $900,000),and 10% by Zoe (basis of $70,000).Both shareholders acquired their shares in Tan more than six years ago.In the current year,Tan Corporation liquidates and distributes land (fair market value of $1.1 million,basis of $1.3 million) and equipment (fair market value of $700,000,basis of $410,000) to Egret Corporation,and securities (fair market value of $200,000,basis of $260,000) to Zoe.What are the tax consequences of these distributions to Egret,to Tan,and to Zoe?

A subsidiary is liquidated pursuant to § 332.The parent has held 100% of the stock in the subsidiary for the past ten years.The subsidiary has a net operating loss carryover of $400,000.The net operating loss does not carry over to the parent.

Legal dissolution under state law is required for a liquidation to be complete for tax purposes.

Since debt security holders do not own stock,they do not fall under the corporate reorganization rules.

Pursuant to a complete liquidation,Oriole Corporation distributes to its shareholders land with a basis of $350,000 and a fair market value of $800,000.The land is subject to a liability of $920,000.What is Oriole's recognized gain or loss on the distribution?

For corporate restructurings,meeting the § 368 reorganization "Type" requirements is all that needs to be considered when planning the structure of the transaction.

Bobcat Corporation redeems all of Zed's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash.Zed's basis in his 20% interest in Bobcat is $100,000 and the stock's value is $250,000.At the time Bobcat is acquired by Van,the accumulated earnings and profits of Bobcat are $200,000 and of Van are $75,000.How does Zed treat this transaction for tax purposes?

The amount of gain recognized by a shareholder in a corporate reorganization is based on the shareholder's proportionate share of E & P.

Scarlet Corporation,the parent corporation,has a basis of $600,000 in the stock of Brown Corporation,a subsidiary in which it owns 90% of all classes of stock.Scarlet purchased the stock in Brown Corporation 10 years ago.In the current year,Scarlet Corporation liquidates Brown Corporation and acquires assets worth $800,000 and with a tax basis to Brown Corporation of $950,000.What basis will Scarlet Corporation have in the assets acquired from Brown Corporation?

If a parent corporation makes a § 338 election,the subsidiary corporation must be liquidated.