Deck 14: Corporate Nonliquidating and Liquidating Distributions

Question 1

Unreasonable compensation issues are more likely to arise in IRS audits of privately-held corporations rather than publicly-traded corporations.

Answer 1

True

Question 2

A stock redemption is always treated as a sale or exchange for tax purposes.

Answer 2

False

Question 3

The "double taxation" of corporate income refers to the fact that corporate income is taxed at both the entity-level and the shareholder-level.

Answer 3

True

Question 4

The term "earnings and profits" is well-defined in the Internal Revenue Code.

Question 5

A distribution from a corporation to a shareholder will always be treated as a dividend for tax purposes.

Question 6

Compensation recharacterized by the IRS as a dividend because it was considered "unreasonable" will affect only the income tax liability of the corporation paying the compensation.

Question 7

Evergreen Corporation distributes land with a fair market value of $50,000 to its sole shareholder. Evergreen's tax basis in the land is $200,000. Evergreen will report a loss of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative.

Question 8

Tammy owns 60 percent of the stock of Huron Corporation. Unrelated individuals own the remaining 40 percent. For a stock redemption to be treated as an exchange under the "substantially disproportionate" rule, Tammy must reduce her stock ownership to below 48 percent.

Question 9

Cedar Corporation incurs a net capital loss of $20,000 in year 1 that cannot be deducted on its income tax return but must be carried forward to year 2. Cedar will deduct the net capital loss in the computation of current earnings and profits for year 1.

Question 10

The recipient of a nontaxable stock distribution will have a zero tax basis in the stock.

Question 11

The recipient of a taxable stock distribution will have a tax basis in the stock equal to the fair market value of the stock received.

Question 12

Stock distributions are always tax-free to the recipient.

Question 13

A distribution from a corporation to a shareholder will only be treated as a dividend for tax purposes if the distribution is paid out of current and/or accumulated earnings and profits.

Question 14

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Assuming sufficient earnings and profits, the amount of dividend reported by the shareholder is $200,000.

Question 15

Only income and deductions included on a corporation's income tax return are included in the computation of current earnings and profits.

Question 16

Terrapin Corporation incurs federal income taxes of $250,000 in year 1. Terrapin deducts the federal income taxes in computing its current earnings and profits for year 1.

Question 17

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Evergreen will report a gain of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative.

Question 18

A corporation's "earnings and profits" account is equal to the company's "retained earnings" account on its balance sheet.

Question 19

Green Corporation has current earnings and profits of $100,000 and negative accumulated earnings and profits of $(200,000). A $50,000 distribution from Green to its sole shareholder will not be treated as a dividend because total earnings and profits is a negative $100,000.

Question 20

Green Corporation has negative current earnings and profits of $100,000 and positive accumulated earnings and profits of $200,000. A $50,000 distribution from Green to its sole shareholder at the end of the year will be treated as a dividend because total earnings and profits is a positive $100,000.

Question 21

A liquidating corporation always recognizes loss realized in a complete liquidation where none of the shareholders is a corporation.

Question 22

The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

Question 23

A distribution in partial liquidation of a corporation is always treated as a sale by an individual shareholder.

Question 24

Grand River Corporation reported taxable income of $500,000 in year 1 and paid federal income taxes of $170,000. Not included in the computation was a disallowed meals and entertainment expense of $2,000, tax exempt income of $1,000, and deferred gain on an installment sale of $25,000. The corporation's current earnings and profits for year 1 would be:

A) $524,000
B) $500,000
C) $354,000
D) $331,000

Question 25

A calendar-year corporation has negative current E&P of $500 and accumulated positive E&P of $1,000. The corporation makes a $600 distribution to its sole shareholder. Which of the following statements is true?

A) $500 of the distribution will be a dividend because total earnings and profits is $500.
B) $0 of the distribution will be a dividend because current earnings and profits is negative.
C) $600 of the distribution will be a dividend because accumulated earnings and profits is $1,000.
D) Up to $600 of the distribution could be a dividend depending on the balance in accumulated earnings and profits on the date of the distribution.

Question 26

Which of these items is not an adjustment to taxable income to compute current E&P?

A) Dividends received deduction
B) Tax-exempt income
C) Net capital loss carryforward from the prior year tax return
D) All of the above are adjustments

Question 27

A liquidating corporation always recognizes gain realized in a complete liquidation.

Question 28

Which of the following statements best describes current earnings and profits?

A) Current earnings and profits is another name for a corporation's retained earnings on its balance sheet.
B) Current earnings and profits is a precisely defined tax term in the Internal Revenue Code and represents a corporation's economic income.
C) Current earnings and profits is a partially defined tax concept in the Internal Revenue Code and represents a corporation's economic income.
D) Current earnings and profits is a conceptual tax concept with no definition in the Internal Revenue Code.

Question 29

Oakland Corporation reported a net operating loss of $500,000 in year 1 and elected to carry the loss forward to year 2. Not included in the computation was a disallowed meals and entertainment expense of $20,000, tax exempt income of $10,000, and deferred gain on an installment sale of $250,000. The corporation's current earnings and profits for year 1 would be:

A) $(500,000)
B) $(720,000)
C) $(510,000)
D) $(260,000)

Question 30

Au Sable Corporation reported taxable income of $800,000 in year 2 and paid federal income taxes of $272,000. Not included in the computation was a disallowed penalty of $25,000, life insurance proceeds of $100,000, and an income tax refund from year 1 of $50,000. Au Sable is an accrual basis taxpayer. The corporation's current earnings and profits for year 2 would be:

A) $875,000
B) $653,000
C) $603,000
D) $553,000

Question 31

A liquidation of a corporation always is a taxable event to the shareholders of the liquidating corporation.

Question 32

The tax basis of property received by a noncorporate shareholder in a complete liquidating will be the property's fair market value.

Question 33

Brothers and sisters are considered "family" under the stock attribution rules that apply to stock redemptions.

Question 34

Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?

A) The distribution is a dividend to the extent of the corporation's earnings and profits, then a return of capital, and finally gain from sale of stock.
B) The distribution is a return of capital, then a dividend to the extent of the corporation's earnings and profits, and finally gain from sale of stock.
C) The distribution is a return of capital, then gain from sale of stock, and finally a dividend to the extent of the corporation's earnings and profits.
D) The shareholder can elect to treat the distribution as either a dividend to the extent of the corporation's earnings and profits or a return of capital, followed by gain from sale of stock.

Question 35

Which statement best describes the concept of the double taxation of corporate income?

A) Corporate income is subject to two levels of taxation: the regular tax and the alternative minimum tax.
B) Corporate income is taxed twice at the corporate level: first when earned and then a second time if appreciated property is distributed to a shareholder.
C) Corporate income is taxed when earned by a C corporation and then a second time at the shareholder level when distributed as a dividend.
D) Corporate income is subject to two levels of taxation: at the federal level and a second time at the state level.

Question 36

Battle Corporation redeems 20 percent of its stock for $100,000 in a stock redemption that is treated as an exchange by the shareholders. Battle's E&P at the date of the redemption is $200,000. Battle will reduce its earnings and profits by $100,000 as a result of the redemption.

Question 37

Which of the following forms of earnings distributions would not be subject to double taxation at the corporate and shareholder level?

A) Dividend
B) Stock redemption
C) Partial liquidation
D) Compensation paid to a shareholder/employee of the corporation

Question 38

A calendar-year corporation has positive current E&P of $500 and accumulated negative E&P of $1,200. The corporation makes a $400 distribution to its sole shareholder. Which of the following statements is true?

A) The distribution will not be a dividend because total earnings and profits is a negative $700.
B) The distribution may be a dividend, depending on whether total earnings and profits at the date of the distribution is positive.
C) The distribution will be a dividend because current earnings and profits is positive and exceeds the distribution.
D) A distribution from a corporation to a shareholder is always a dividend, regardless of the balance in earnings and profits.

Question 39

Which of the following statements best describes the role of current and accumulated earnings and profits in determining if a distribution is a dividend?

A) A distribution will only be a dividend if total earnings and profits (current plus accumulated) is positive at the time of the distribution.
B) A distribution can never be a dividend if current earnings and profits is negative.
C) A distribution will be a dividend if current earnings and profits for the year is positive, even if accumulated earnings and profits is negative.
D) A distribution will never be a dividend if current earnings and profits for the year is negative, even if accumulated earnings and profits is positive.

Question 40

Diego owns 30 percent of Azul Corporation. Azul Corporation owns 50 percent of Verde Corporation. Under the attribution rules applying to stock redemptions, Diego is treated as owning 15 percent of Verde Corporation.

Question 41

Wildcat Corporation reports current E&P of negative $200,000 in year 1 and accumulated E&P at the beginning of the year of $100,000. Wildcat distributed $300,000 to its sole shareholder on December 31, year 1. How much of the distribution is treated as a dividend in year 1?

A) $0
B) $100,000
C) $200,000
D) $300,000

Question 42

Husker Corporation reports current E&P of negative $200,000 in year 1 and accumulated E&P at the beginning of the year of $300,000. Husker distributed $200,000 to its sole shareholder on December 31, year 1. The shareholder's tax basis in her stock in Husker is $50,000. How is the distribution treated by the shareholder in year 1?

A) $200,000 dividend
B) $100,000 dividend, $50,000 tax-free return of basis, and $50,000 capital gain
C) $100,000 dividend and $100,000 tax-free return of basis
D) $0 dividend, $50,000 tax-free return of basis, and $150,000 capital gain

Question 43

Aztec Company reports current E&P of $200,000 in year 1 and accumulated E&P at the beginning of the year of negative $100,000. Aztec distributed $300,000 to its sole shareholder on January 1, year 1. How much of the distribution is treated as a dividend in year 1?

A) $300,000
B) $200,000
C) $100,000
D) $0

Question 44

Beaver Company reports current E&P of $100,000 in year 1 and accumulated E&P at the beginning of the year of $200,000. Beaver distributed $400,000 to its sole shareholder on January 1, year 1. The shareholder's tax basis in her stock in Beaver is $200,000. How is the distribution treated by the shareholder in year 1?

A) $400,000 dividend
B) $100,000 dividend, $200,000 tax-free return of basis, and $100,000 capital gain
C) $200,000 dividend and $200,000 tax-free return of basis
D) $300,000 dividend and $100,000 tax-free return of basis

Question 45

Montclair Corporation had current and accumulated E&P of $500,000 at December 31, year 1. On December 31, the company made a distribution of land to its sole shareholder, Molly Pitcher. The land's fair market value was $200,000 and its tax and E&P basis to Montclair was $50,000. Molly assumed a liability of $25,000 attached to the land. The tax consequences of the distribution to Montclair in year 1 would be:

A) No gain recognized and a reduction in E&P of $200,000
B) $150,000 gain recognized and a reduction in E&P of $200,000
C) $150,000 gain recognized and a reduction in E&P of $175,000
D) No gain recognized and a reduction in E&P of $175,000

Question 46

Madison Corporation reported taxable income of $400,000 in year 2 and accrued federal income taxes of $136,000. Included in the computation was regular depreciation of $200,000 (E&P depreciation is $60,000), first year expensing under §179 of $100,000, and a net capital loss carryover of $20,000 from year 1. The corporation's current earnings and profits for year 2 would be:

A) $504,000
B) $484,000
C) $460,000
D) $424,000

Question 47

Catamount Company had current and accumulated E&P of $500,000 at December 31, year 1. On December 31, the company made a distribution of land to its sole shareholder, Caroline West. The land's fair market value was $200,000 and its tax and E&P basis to Catamount was $250,000. The tax consequences of the distribution to Catamount in year 1 would be:

A) No loss recognized and a reduction in E&P of $250,000
B) $50,000 loss recognized and a reduction in E&P of $250,000
C) $50,000 loss recognized and a reduction in E&P of $150,000
D) No loss recognized and a reduction in E&P of $200,000

Question 48

El Toro Corporation declared a common stock distribution to all shareholders of record on June 30, year 1. Shareholders will receive 1 share of El Toro stock for each 2 shares of stock they already own. Raoul owns 300 shares of El Toro stock with a tax basis of $60 per share. The fair market value of the El Toro stock was $100 per share on June 30, year 1. What are the tax consequences of the stock distribution to Raoul?

A) $0 dividend income and a tax basis in the new stock of $100 per share
B) $0 dividend income and a tax basis in the new stock of $60 per share
C) $0 dividend income and a tax basis in the new stock of $40 per share
D) $15,000 dividend and a tax basis in the new stock of $100 per share

Question 49

Tar Heel Corporation had current and accumulated E&P of $500,000 at December 31 year 1. On December 31, the company made a distribution of land to its sole shareholder, William Roy. The land's fair market value was $100,000 and its tax and E&P basis to Tar Heel was $25,000. William assumed a mortgage attached to the land of $10,000. The tax consequences of the distribution to William in year 1 would be:

A) $100,000 dividend and a tax basis in the land of $100,000
B) $100,000 dividend and a tax basis in the land of $90,000
C) Dividend of $90,000 and a tax basis in the land of $100,000
D) Dividend of $90,000 and a tax basis in the land of $90,000

Question 50

Paladin Corporation had current and accumulated E&P of $500,000 at December 31, year 1. On December 31, the company made a distribution of land to its sole shareholder, Maria Mendez. The land's fair market value was $200,000 and its tax and E&P basis to Paladin was $250,000. Maria assumed a liability of $25,000 attached to the land. The tax consequences of the distribution to Paladin in year 1 would be:

A) No loss recognized and a reduction in E&P of $200,000
B) $50,000 loss recognized and a reduction in E&P of $200,000
C) $50,000 loss recognized and a reduction in E&P of $225,000
D) No loss recognized and a reduction in E&P of $225,000

Question 51

Which of the following stock distributions would be nontaxable to the shareholder?

A) A stock distribution of one common share for every common share owned by shareholders
B) A stock distribution where the shareholder could choose between cash and stock
C) A stock distribution to all holders of preferred stock
D) Both A and C are nontaxable to the shareholder

Question 52

Packard Corporation reported taxable income of $1,000,000 in year 3 and paid federal income taxes of $340,000. Included in the computation was a dividends received deduction of $5,000, a net capital loss carryover from year 2 of $10,000, and gain of $50,000 from an installment sale that took place in year 1. The corporation's current earnings and profits for year 3 would be:

A) $1,015,000
B) $965,000
C) $675,000
D) $625,000

Question 53

Bruin Company reports current E&P of $200,000 in year 1 and accumulated E&P at the beginning of the year of $100,000. Bruin distributed $400,000 to its sole shareholder on January 1, year 1. How much of the distribution is treated as a dividend in year 1?

A) $400,000
B) $300,000
C) $200,000
D) $100,000

Question 54

Cavalier Corporation had current and accumulated E&P of $500,000 at December 31 year 1. On December 31, the company made a distribution of land to its sole shareholder, Tom Jefferson. The land's fair market value was $200,000 and its tax and E&P basis to Cavalier was $50,000. The tax consequences of the distribution to Cavalier in year 1 would be:

A) No gain recognized and a reduction in E&P of $200,000
B) $150,000 gain recognized and a reduction in E&P of $200,000
C) $150,000 gain recognized and a reduction in E&P of $50,000
D) No gain recognized and a reduction in E&P of $50,000

Question 55

Greenwich Corporation reported a net operating loss of $800,000 in year 1, which the corporation elected to carryforward to year 2. Not included in the computation was a disallowed fine of $50,000, life insurance proceeds of $500,000, and a current year charitable contribution of $10,000 that will be carried forward to year 2. The corporation's current earnings and profits for year 1 would be:

A) $(250,000)
B) $(260,000)
C) $(300,000)
D) $(360,000)

Question 56

Inca Company reports current E&P of negative $100,000 in year 1 and accumulated E&P at the beginning of the year of $200,000. Inca distributed $300,000 to its sole shareholder on January 1, year 1. How much of the distribution is treated as a dividend in year 1?

A) $0
B) $100,000
C) $200,000
D) $300,000

Question 57

Which of the following payments could be treated as a constructive dividend by the IRS?

A) End-of-year bonus payment to a shareholder/employee
B) Rent paid to a shareholder/lessor
C) Interest paid to a shareholder/creditor
D) All of these payments could be treated as a constructive dividend by the IRS

Question 58

Which of the following factors would not be considered in determining if compensation paid to a shareholder/employee is reasonable?

A) The individual's duties and responsibilities
B) What individuals performing in comparable capacities at other companies are paid
C) Whether the corporation has a formal compensation policy
D) The individual's marginal income tax rate

Question 59

Longhorn Company reports current E&P of $100,000 in year 1 and accumulated E&P at the beginning of the year of negative $200,000. Longhorn distributed $300,000 to its sole shareholder on January 1, year 1. The shareholder's tax basis in his Longhorn stock is $100,000. How is the distribution treated by the shareholder in year 1?

A) $300,000 dividend
B) $100,000 dividend, $100,000 tax-free return of basis, and $100,000 capital gain
C) $100,000 dividend and $200,000 tax-free return of basis
D) $0 dividend, $100,000 tax-free return of basis, and $200,000 capital gain

Question 60

Abbot Corporation reported a net operating loss of $400,000 in year 1, which the corporation elected to carryforward to year 2. Included in the computation was regular depreciation of $100,000 (E&P depreciation is $40,000), and a dividends received deduction of $15,000. The corporation's current earnings and profits for year 1would be:

A) $(325,000)
B) $(340,000)
C) $(400,000)
D) $(355,000)

Question 61

Viking Corporation is owned equally by Sven and his wife Olga, each of whom hold 100 shares in the company. Viking redeemed 75 shares of Sven's stock in the company on December 31, year 1. Viking paid Sven $2,000 per share. His income tax basis in each share is $1,000. Viking has total E&P of $500,000. What are the tax consequences to Sven as a result of the stock redemption?

A) $75,000 capital gain and a tax basis in each of his remaining shares of $1,000.
B) $75,000 capital gain and a tax basis in each of his remaining shares of $2,000.
C) $150,000 dividend and a tax basis in each of his remaining shares of $1,000.
D) $150,000 dividend and a tax basis in each of his remaining shares of $4,000.

Question 62

Lansing Company is owned equally by Jennifer, her husband Dan, and DeWitt Corporation, which is owned 50 percent by Jennifer and her sister Jane. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Lansing stock is DeWitt Corporation deemed to own?

A) 100
B) 200
C) 250
D) 300

Question 63

Panda Company is owned equally by Min, her husband Bin, her sister Xiao, and her grandson, Han, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Panda stock is Min deemed to own?

A) 100
B) 200
C) 300
D) 400

Question 64

Which of the following individuals is not considered "family" for purposes of applying the stock attribution rules to a stock redemption?

A) Parents
B) Grandchildren
C) Grandparents
D) Spouse

Question 65

Which of the following statements is true?

A) All stock redemptions are treated as exchanges for tax purposes.
B) A stock redemption not treated as an exchange will automatically be treated as a taxable dividend.
C) All stock redemptions are treated as dividends if received by an individual.
D) A stock redemption is treated as an exchange only if it meets one of three stock ownership tests described in the Internal Revenue Code.

Question 66

General Inertia Corporation made a distribution of $50,000 to Henry Tiara in partial liquidation of the company on December 31, year 1. Henry owns 500 shares (50%) of General Inertia. The distribution was in exchange for 250 shares of Henry's stock in the company. After the partial liquidation, Henry continued to own 50% of the remaining stock in General Inertia. At the time of the distribution, the shares had a fair market value of $200 per share. Henry's income tax basis in the shares was $100 per share. General Inertia had total E&P of $800,000 at the time of the distribution. What are the tax consequences to Henry as a result of the transaction?

A) Henry has dividend income of $50,000 and a tax basis in his remaining shares of $100 per share.
B) Henry has capital gain of $25,000 and a tax basis in his remaining shares of $100 per share.
C) Henry has dividend income of $50,000 and a tax basis in his remaining shares of $200 per share.
D) Henry has capital gain of $25,000 and a tax basis in his remaining shares of $200 per share.

Question 67

Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Comet redeems 50 of Pam's shares on December 31, year 1, for $1,000 per share in a transaction that Pam treats as an exchange for tax purposes. Comet has total E&P of $160,000 on December 31, year 1. What are the tax consequences to Comet as a result of the stock redemption?

A) No reduction in E&P as a result of the exchange.
B) A reduction of $50,000 in E&P as a result of the exchange.
C) A reduction of $40,000 in E&P as a result of the exchange.
D) A reduction of $80,000 in E&P as a result of the exchange.

Question 68

Sam owns 70 percent of the stock of Club Corporation. Unrelated individuals own the remaining 30 percent. For a stock redemption of Sam's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Club stock must Sam own after the redemption?

A) Any percentage less than 70 percent
B) Any percentage less than 56 percent
C) Any percentage less than 50 percent
D) All stock redemptions involving individuals are treated as exchanges

Question 69

Viking Corporation is owned equally by Sven and his wife Olga, each of whom hold 100 shares in the company. Viking redeemed 75 shares of Sven's stock for $2,000 per share on December 31, year 1. Viking has total E&P of $500,000. What are the tax consequences to Viking as a result of the stock redemption?

A) No reduction in E&P as a result of the exchange.
B) A reduction of $150,000 in E&P as a result of the exchange.
C) A reduction of $187,500 in E&P as a result of the exchange.
D) A reduction of $375,000 in E&P as a result of the exchange.

Question 70

Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Comet redeems 50 of Pam's shares on December 31, year 1, for $1,000 per share in a transaction that Pam treats as an exchange for tax purposes. Comet has total E&P of $250,000 on December 31, year 1. What are the tax consequences to Comet as a result of the stock redemption?

A) No reduction in E&P as a result of the exchange.
B) A reduction of $50,000 in E&P as a result of the exchange.
C) A reduction of $62,500 in E&P as a result of the exchange.
D) A reduction of $125,000 in E&P as a result of the exchange.

Question 71

Lansing Company is owned equally by Jennifer, her husband Dan, and DeWitt Corporation, which is owned 50 percent by Jennifer and her sister Jane. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Lansing stock is Jennifer deemed to own?

A) 100
B) 200
C) 250
D) 300

Question 72

Wonder Corporation declared a common stock distribution to all shareholders of record on September 30, year 1. Shareholders will receive three shares of Wonder stock for each five shares of stock they already own. Diana owns 300 shares of Wonder stock with a tax basis of $90 per share (a total basis of $27,000). The fair market value of the Wonder stock was $180 per share on September 30, year 1. What are the tax consequences of the stock distribution to Diana?

A) $0 dividend income and a tax basis in the new stock of $180 per share
B) $0 dividend income and a tax basis in the new stock of $67.50 per share
C) $0 dividend income and a tax basis in the new stock of $56.25 per share
D) $10,800 dividend and a tax basis in the new stock of $180 per share

Question 73

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 74

General Inertia Corporation made a pro rata distribution of $50,000 to Tiara, Inc. in partial liquidation of the company on December 31, year 1. Tiara, Inc. owns 500 shares (50%) of General Inertia. The distribution was in exchange for 250 shares of Tiara's stock in the company. After the partial liquidation, Tiara continued to own 50% of the remaining stock in General Inertia. At the time of the distribution, the shares had a fair market value of $200 per share. Tiara's income tax basis in the shares was $100 per share. General Inertia had total E&P of $800,000 at the time of the distribution. What amount of dividend or capital gain does Tiara recognize as a result of the transaction?

A) Tiara does not recognize any dividend income or capital gain.
B) Tiara recognizes capital gain of $50,000.
C) Tiara recognizes dividend income of $50,000.
D) Tiara recognizes capital gain of $25,000.

Question 75

Corona Company is owned equally by Maria, her sister Carlita, her mother Gabriella, and her grandmother Olivia, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Corona stock is Maria deemed to own?

A) 100
B) 200
C) 300
D) 400

Question 76

Sara owns 80 percent of the stock of Lea Corporation. Unrelated individuals own the remaining 20 percent. For a stock redemption of Sara's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Lea stock must Sara own after the redemption?

A) Any percentage less than 80 percent
B) Any percentage less than 50 percent
C) Any percentage less than 64 percent
D) All stock redemptions involving individuals are treated as exchanges

Question 77

Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband Tommy. Which of the following statements is true?

A) A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange for tax purposes under any circumstance.
B) A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as a dividend for tax purposes if Tammy waives the family attribution rules and files a "triple i" agreement with the IRS.
C) A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange if Tammy waives the family attribution rules and files a "triple i" agreement with the IRS.
D) None of the above

Question 78

Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December 31, year 1. Pam's income tax basis in each share is $500. Comet has total E&P of $250,000. What are the tax consequences to Pam as a result of the stock redemption?

A) $25,000 capital gain and a tax basis in each of her remaining shares of $500.
B) $25,000 capital gain and a tax basis in each of her remaining shares of $100.
C) $50,000 dividend and a tax basis in each of her remaining shares of $100.
D) $50,000 dividend and a tax basis in each of her remaining shares of $50.

Question 79

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.

Question 80

Beltway Company is owned equally by George, his brother Thomas, and a partnership owned 50 percent by George and his father Abe. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Beltway stock is George deemed to own?

A) 100
B) 150
C) 200
D) 300