Deck 8: Corporate Formation, Reorganization, and Liquidation

Question 1

Tax considerationsshould always be the primary reason for structuring an acquisition.

Answer 1

False

Question 2

A taxpayer who receives nonvoting stock is not eligible for deferral in a §351 exchange.

Answer 2

False

Question 3

The requirements for tax deferral in a forward triangular merger and a reverse triangular merger are the same.

Answer 3

False

Question 4

Mandel transferred property to his new corporation in a §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.

Question 5

Maria defers $100 of gain realized in a §351 transaction. The stock she receives in the exchange has a fair market value of $500. Maria's tax basis in the stock will be $400.

Question 6

Control as it relates to a §351 transaction is strictly defined to be 80 percent or more of the voting power of the stock of the corporation to which property is transferred.

Question 7

A §338 transaction is a stock acquisition elected to be treated as an asset acquisition.

Question 8

Type A reorganizations involve the transfer of assets of the target corporation via a merger or consolidation.

Question 9

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.

Question 10

To meet the control test under §351, taxpayers transferring property to a corporation must in aggregate own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock after the transfer.

Question 11

Han transferred land to his solely owned corporation in a §351 transaction. Han had held the land for two years prior to the transfer and recognized no gain on the transfer. The corporation will tack Han's holding period for the land.

Question 12

The shareholders in the target corporation always receive a tax basis in the stock received from the acquirer equal to the stock's fair market value.

Question 13

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

Question 14

The definition of property as it relates to a §351 transaction includes money.

Question 15

Gain and loss realized in a §351 transaction will be recognized if the taxpayer receives boot in the exchange.

Question 16

Generally, before gain or loss is realized for tax purposes, the taxpayer must engage in a transaction.

Question 17

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.

Question 18

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.

Question 19

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

Question 20

A reverse triangular reorganization requires that the target shareholders receive voting stock of the acquiring corporation.

Question 21

A liquidated corporation will always recognize gain in a complete liquidation.

Question 22

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

A) Cash received
B) Fair market value of property received
C) Selling expenses
D) Adjusted basis of property transferred

Question 23

Casey transfers property with a tax basis of $2,500 and a fair market value of $6,900 to a corporation in exchange for stock with a fair market value of $5,300 and $700 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $900 on the property transferred. Casey also incurred selling expenses of $316. What is the amount realized by Casey in the exchange?

A) $6,900
B) $6,584
C) $6,484
D) $5,784

Question 24

Which of the following statements best describes the tax law approach to recognizing gain or loss realized in an exchange?

A) Gain or loss realized is not recognized unless specifically stated otherwise in the Internal Revenue Code.
B) Gain or loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code.
C) Gain realized is recognized unless specifically stated otherwise in the Internal Revenue Code, but loss realized is not recognized unless specifically stated otherwise in the Internal Revenue Code.
D) Loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code, but gain realized is not recognized unless specifically stated otherwise in the Internal Revenue Code.

Question 25

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?

A) $800
B) $600
C) $550
D) $450

Question 26

Camille transfers property with a tax basis of $800 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $850 and $350 in cash in a transaction that qualifies for deferral under section 351. Camille also incurred selling expenses of $100. What is the amount realized by Camille in the exchange?

A) $1,200
B) $1,100
C) $850
D) $750

Question 27

Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $350 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is the amount realized by Roberta in the exchange?

A) $500
B) $400
C) $350
D) $250

Question 28

Which of the following statements about §351 transactions is false?

A) A transferor of property must receive stock equal to at least 80 percent of the fair value of the property transferred.
B) In the aggregate, the transferors of property to the corporation must collectively own 80 percent of the voting stock of the corporation immediately after the transfers.
C) Only property transferred to a corporation is eligible for deferral.
D) All transfers of property to a corporation must be made simultaneously to qualify for deferral.

Question 29

Antoine transfers property with a tax basis of $535 and a fair market value of $652 to a corporation in exchange for stock with a fair market value of $555 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $97 on the property transferred. What is Antoine's tax basis in the stock received in the exchange?

A) $652
B) $555
C) $535
D) $438

Question 30

Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 in cash in a transaction that qualifies for deferral under §351. The corporation assumed a liability of $50 on the property transferred. What is Roy's tax basis in the stock received in the exchange?

A) $800
B) $750
C) $700
D) $500

Question 31

Inez transfers property with a tax basis of $200 and a fair market value of $300 to a corporation in exchange for stock with a fair market value of $250 in a transaction that qualifies for deferral under §351. The corporation assumed a liability of $50 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

A) $150
B) $200
C) $250
D) $300

Question 32

Which of the following amounts is not included in the computation of a property's adjusted basis in an exchange?

A) Selling expenses incurred by the buyer
B) Acquisition cost of the buyer
C) Capital improvements made to the property by the buyer
D) Depreciation of the property by the buyer

Question 33

Camille transfers property with a tax basis of $1,140 and a fair market value of $1,340 to a corporation in exchange for stock with a fair market value of $1,270 and $70 incash in a transaction that qualifies for deferral under section 351. Camille also incurred selling expenses of $133. What is the amount realized by Camille in the exchange?

A) $1,340
B) $1,207
C) $1,270
D) $1,137

Question 34

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

Question 35

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?

A) $5,000
B) $4,700
C) $4,600
D) $4,200

Question 36

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?

A) $1,200
B) $1,100
C) $1,000
D) $900

Question 37

Carlos transfers property with a tax basis of $865 and a fair market value of $1,185 to a corporation in exchange for stock with a fair market value of $975 and $71 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $139 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

A) $1,185
B) $904
C) $936
D) $797

Question 38

Antoine transfers property with a tax basis of $500 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $550 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is Antoine's tax basis in the stock received in the exchange?

A) $600
B) $550
C) $500
D) $450

Question 39

Roberta transfers property with a tax basis of $435 and a fair market value of $559 to a corporation in exchange for stock with a fair market value of $372 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $187 on the property transferred. What is the amount realized by Roberta in the exchange?

A) $559
B) $435
C) $372
D) $280

Question 40

The tax basis of property received by a non-corporate shareholder in a complete liquidation will be the property's fair market value.

Question 41

Tristan transfers property with a tax basis of $920 and a fair market value of $1,600 to a corporation in exchange for stock with a fair market value of $920 and $426 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $254 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

A) $1,600
B) $1,346
C) $1,174
D) $920

Question 42

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 noncapital assets.
D) Sellers generally prefer to sell stock because they can recognize capital gain on the sale taxed at preferential rates.

Question 43

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

A) §1244 allows an individual shareholder to exempt gain from sale of the stock from tax.
B) §1244 allows an individual shareholder to deduct all of the loss from sale of the stock as an ordinary loss in the year of the sale.
C) §1244 allows an individual shareholder to deduct up to $50,000 of the loss from sale of the stock as an ordinary loss in the year of the sale.
D) §1244 allows a corporate shareholder to deduct up to $50,000 of the loss from sale of the stock as an ordinary loss in the year of the sale.

Question 44

Amy transfers property with a tax basis of $1,590 and a fair market value of $1,080 to a corporation in exchange for stock with a fair market value of $605 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $475 on the property transferred. What is Amy's tax basis in the stock received in the exchange?

A) $1,590
B) $1,115
C) $1,015
D) $605

Question 45

Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation in exchange for stock with a fair market value of $600. In addition, Sami received stock with a fair market value of $50 in exchange for services she provided to the corporation in the incorporation process. Which of the following statements best describes the tax result to Sami because of the exchanges?

A) Sami will recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under §351.
B) Sami will recognize $50 of compensation income, but she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under §351.
C) Sami will not recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under §351.
D) Sami will not recognize $50 of compensation income, and she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under §351.

Question 46

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?

A) $900
B) $850
C) $800
D) $750

Question 47

Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock with a fair market value of $3,000 and $2,000 in cash in a transaction that qualifies for deferral under §351. The corporation assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stock received in the exchange?

A) $6,000
B) $5,000
C) $4,000
D) $3,000

Question 48

Which of the following classes of stock is not allowed to be used in a §351 transaction?

A) Voting common stock
B) Voting preferred stock
C) Nonvoting preferred stock
D) All of these classes of stock can be used in a §351 transaction.

Question 49

Which of the following statements best describes the concept of control as it applies to a §351 transaction?

A) Control is defined as the ownership of 80 percent or more of a corporation's voting stock.
B) Control is defined as the ownership of 80 percent or more of the fair market value of a corporation's stock.
C) Control is defined as the ownership of 80 percent or more of a corporation's voting stock and 80 percent or more of the fair market value of a corporation's stock.
D) Control is defined as the ownership of 80 percent or more of a corporation's voting stock and 80 percent or more of the total number of shares of each class of nonvoting stock.

Question 50

Amy transfers property with a tax basis of $900 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $450 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is Amy's tax basis in the stock received in the exchange?

A) $900
B) $750
C) $650
D) $450

Question 51

Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a corporation in exchange for stock with a fair market value of $2,000 and $500 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $500 on the property transferred. What is Ashley's tax basis in the stock received in the exchange?

A) $5,000
B) $4,000
C) $3,000
D) $2,000

Question 52

Rachelle transfers property with a tax basis of $980 and a fair market value of $1,280 to a corporation in exchange for stock with a fair market value of $720 and $88 incash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $472 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

A) $1,280
B) $1,068
C) $980
D) $720

Question 53

Which of the following statements best describes a §338 transaction?

A) A §338 transaction is an election made by the buyer to treat a stock acquisition as an asset acquisition.
B) A §338 transaction is an election made by the buyer to treat an asset acquisition as a stock acquisition.
C) A §338 transaction is an election made by the seller to treat a stock acquisition as an asset acquisition.
D) A §338 transaction is an election made by the seller to treat an asset acquisition as a stock acquisition.

Question 54

Ashley transfers property with a tax basis of $8,240 and a fair market value of $4,840 to a corporation in exchange for stock with a fair market value of $3,400 and $525 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $915 on the property transferred. What is Ashley's tax basis in the stock received in the exchange?

A) $8,240
B) $6,800
C) $4,840
D) $3,400

Question 55

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 §351. The corporation assumed a liability of $100 on the property transferred. What is Rachelle's tax basis in the stock received in the exchange?

A) $900
B) $850
C) $750
D) $700

Question 56

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) The shareholder recognizes a gain or loss on the transfer, and the corporation's basis in the property transferred equals its fair market value.
B) The shareholder does not recognize a gain or loss on the transfer, and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred.
C) The shareholder recognizes a gain or loss on the transfer, and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred.
D) The shareholder does not recognize a gain or loss on the transfer, and the corporation's basis in the property transferred equals zero.

Question 57

Which of the following statements best describes the "built-in loss" rules that apply to property transferred to a corporation under §351?

A) If the basis of a property transferred to a corporation under §351 exceeds its fair market value, the corporation will always take a tax basis in the property equal to the property's fair market value.
B) If the basis of a property transferred to a corporation under §351 exceeds its fair market value, the corporation will always take a tax basis in the property equal to the property's tax basis in the hands of the shareholder.
C) If the aggregate basis of all property transferred to a corporation under §351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate fair market value of the property.
D) If the aggregate basis of all property transferred to a corporation under §351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate tax basis of the property.

Question 58

Which of the following statements best describes the tax consequences of a §338 election?

A) Gain or loss is recognized by the acquired corporation on the deemed sale of its assets, and the buyer gets a stepped-up basis in the assets acquired.
B) Gain or loss is recognized by the acquired corporation on the deemed sale of its assets, and the buyer gets a carryover basis in the assets acquired.
C) Gain or loss is not recognized by the acquired corporation on the deemed sale of its assets, and the buyer gets a stepped-up basis in the assets acquired.
D) Gain or loss is not recognized by the acquired corporation on the deemed sale of its assets, and the buyer gets a carryover basis in the assets acquired.

Question 59

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.

Question 60

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.

Question 61

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 $200,000. Julian's tax basis in the Lemon stock was $400,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

A) $200,000 loss recognized and a basis in Apricot stock of $200,000
B) No loss recognized and a basis in Apricot stock of $400,000
C) $200,000 loss recognized and a basis in Apricot stock of $400,000
D) No loss recognized and a basis in Apricot stock of $200,000

Question 62

Which of the following statements best describes the requirement that must be met in a tax-deferred Type B stock-for-stock reorganization?

A) The 40 percent continuity of interest test must be met with respect to the stock transferred from the acquisition corporation to the target shareholders.
B) The acquiring corporation must hold substantially all of the target's properties after the acquisition.
C) The target corporation shareholders must receive "solely" voting stock in the acquiring corporation in the exchange.
D) The target corporation shareholders must receive voting stock in the acquiring corporation in exchange for 60 percent or more of the target corporation stock.

Question 63

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) $500,000 loss recognized and a basis in Jefferson stock of $600,000
B) $500,000 loss recognized and a basis in Jefferson stock of $1,100,000
C) No loss recognized and a basis in Jefferson stock of $1,500,000
D) No loss recognized and a basis in Jefferson stock of $1,100,000

Question 64

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

A) The 40 percent continuity of interest test must be met with respect to the stock transferred from the acquisition corporation to the target corporation shareholders.
B) The acquirer must hold substantially all of the target corporation's properties after the merger.
C) The continuity of business enterprise test must be met with respect to the target corporation.
D) The target corporation shareholders must receive voting stock in the acquiring corporation.

Question 65

Which of the following statements best describes the continuity of interest principle as it applies to a tax-deferred acquisition?

A) Continuity of interest requires each shareholder to receive at least 40 percent of the consideration received in equity of the acquirer.
B) Continuity of interest requires shareholders in the aggregate to receive at least 40 percent of the consideration received in equity of the acquirer.
C) Continuity of interest requires each shareholder to receive at least 80 percent of the consideration received in equity of the acquirer.
D) Continuity of interest requires shareholders in the aggregate to receive at least 80 percent of the consideration received in equity of the acquirer.

Question 66

Which of the following principles does not need to be satisfied for an acquisition to be a tax-deferred reorganization?

A) Continuity of interest
B) Continuity of purpose
C) Business purpose
D) Continuity of business enterprise

Question 67

Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger. In exchange, she received stock in Plum with a fair market value of $500,000 plus $500,000 in cash. Simone's tax basis in the Purple stock was $200,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

A) $800,000 gain recognized and a basis in Plum stock of $1,000,000
B) $800,000 gain recognized and a basis in Plum stock of $500,000
C) $500,000 gain recognized and a basis in Plum stock of $500,000
D) $500,000 gain recognized and a basis in Plum stock of $200,000

Question 68

Paladin Corporation transferred its 90 percent interest to Furman Company as part of a complete liquidation of the company. In the exchange, Paladin received land with a fair market value of $1,000,000. The corporation's basis in the Furman Company stock was $400,000. The land had a basis to Furman Company of $200,000. What amount of gain does Paladin recognize in the exchange and what is its basis in the land it receives?

A) $600,000 gain recognized and a basis in the land of $1,000,000
B) $600,000 gain recognized and a basis in the land of $400,000
C) No gain recognized and a basis in the land of $400,000
D) No gain recognized and a basis in the land of $200,000

Question 69

Jalen transferred his 10 percent interest to Wolverine Company as part of a complete liquidation of the company. In the exchange, he received land with a fair market value of $100,000. Jalen's basis in the Wolverine stock was $50,000. The land had a basis to Wolverine Company of $80,000. What amount of gain does Jalen recognize in the exchange and what is his basis in the land he receives?

A) $50,000 gain recognized and a basis in the land of $100,000
B) $50,000 gain recognized and a basis in the land of $80,000
C) No gain recognized and a basis in the land of $80,000
D) No gain recognized and a basis in the land of $50,000

Question 70

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?

A) $200,000 loss recognized and a basis in Marketing stock of $1,200,000
B) No loss recognized and a basis in Marketing stock of $1,200,000
C) $200,000 loss recognized and a basis in Marketing stock of $700,000
D) No loss recognized and a basis in Marketing stock of $700,000

Question 71

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?

A) $200,000 gain recognized and a basis in the land of $600,000
B) $200,000 gain recognized and a basis in the land of $500,000
C) No gain recognized and a basis in the land of $600,000
D) No gain recognized and a basis in the land of $300,000

Question 72

Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger. In exchange, she received stock in Plum with a fair market value of $532,500 plus $532,500 in cash. Simone's tax basis in the Purple stock was $287,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

A) $778,000 gain recognized and a basis in Plum stock of $1,065,000
B) $778,000 gain recognized and a basis in Plum stock of $532,500
C) $532,500 gain recognized and a basis in Plum stock of $532,500
D) $532,500 gain recognized and a basis in Plum stock of $287,000

Question 73

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 $535,000. The corporation's basis in the Tea Company stock was $315,000. The land had a basis to Tea Company of $617,500. What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives?

A) $220,000 gain recognized and a basis in the land of $617,500
B) $220,000 gain recognized and a basis in the land of $535,000
C) No gain recognized and a basis in the land of $617,500
D) No gain recognized and a basis in the land of $302,500

Question 74

Juan transferred 100 percent of his stock in Rosa Company to Azul Corporation in a Type B stock-for-stock exchange. In exchange, he received stock in Azul with a fair market value of $1,000,000. Juan's tax basis in the Rosa stock was $400,000. What amount of gain does Juan recognize in the exchange and what is his basis in the Azul stock he receives?

A) $600,000 gain recognized and a basis in Azul stock of $400,000
B) No gain recognized and a basis in Azul stock of $400,000
C) $600,000 gain recognized and a basis in Azul stock of $1,000,000
D) No gain recognized and a basis in Azul stock of $1,000,000

Question 75

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 $205,000. Julian's tax basis in the Lemon stock was $410,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

A) $205,000 loss recognized and a basis in Apricot stock of $205,000
B) No loss recognized and a basis in Apricot stock of $410,000
C) $205,000 loss recognized and a basis in Apricot stock of $410,000
D) No loss recognized and a basis in Apricot stock of $205,000

Question 76

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?

A) $400,000 gain recognized and a basis in Otter stock of $400,000
B) $600,000 gain recognized and a basis in Otter stock of $400,000
C) $400,000 gain recognized and a basis in Otter stock of $600,000
D) $600,000 gain recognized and a basis in Otter stock of $600,000

Question 77

Which of the following statements best describes the application of the continuity of enterprise principle to a Type A tax-deferred reorganization?

A) The continuity of business enterprise principle must be satisfied for both the acquirer and the target corporation.
B) The continuity of business enterprise principle must be satisfied for only the target corporation.
C) The continuity of business enterprise principle must be satisfied for only the acquirer.
D) The continuity of business enterprise principle does not have to be satisfied as long as the business purpose principle is satisfied.

Question 78

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 $532,500 plus $532,500 in cash. Celeste's tax basis in the Supply Chain stock was $1,455,000. What amount of loss does Celeste recognize in the exchange and what is her basis in the Marketing stock she receives?

A) $390,000 loss recognized and a basis in Marketing stock of $1,455,000
B) No loss recognized and a basis in Marketing stock of $1,455,000
C) $390,000 loss recognized and a basis in Marketing stock of $922,500
D) No loss recognized and a basis in Marketing stock of $922,500

Question 79

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

A) The 40 percent continuity of interest test must be met with respect to the stock transferred from the acquisition corporation to the target corporation shareholders.
B) The target must hold substantially all of the target corporation's properties and the properties of the acquisition subsidiary after the merger.
C) The continuity of business enterprise test must be met with respect to the target corporation.
D) The target corporation shareholders must receive voting stock in the acquiring corporation.

Question 80

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.