Question 1

Indigo has a basis of $1 million in the stock of Owl Corporation, a subsidiary in which it owns 100% of all classes of stock. Indigo purchased the stock in Owl 10 years ago. In the current year, Indigo liquidates Owl and acquires assets worth $1.2 million. At the time of its liquidation, Owl Corporation had a basis of $800,000 in the assets and E & P of $500,000.Which of the following statements is correct with respect to the liquidation?

Accepted Answer

A) Owl recognizes a gain of $400,000. 
B) Indigo has an $800,000 basis in the assets. 
C) Owl's E & P of $500,000 is eliminated. 
D) Indigo recognizes a gain of $200,000. 
E) None of the above.

Question 2

The determination of whether a shareholder's gain qualifies for stock redemption treatment in a corporate reorganization is based on the reduction in the percentage of the stock held in the target corporation when compared to the percentage held in the acquiring corporation.

Accepted Answer

A) True 
 B)False

Question 3

Noncorporate shareholders may elect out of § 368 and recognize losses when property subject to a liability is distributed to them in a corporate reorganization.

Accepted Answer

A) True 
 B)False

Question 4

Magenta Corporation acquired land in a § 351 exchange one year ago.The land had a basis of $320,000 and a fair market value of $350,000 on the date of the transfer.Magenta Corporation has two shareholders, Mark (70%) and Megan (30%), who are brother and sister.Magenta Corporation adopts a plan of liquidation in the current year.On this date, the land has decreased in value to $250,000.Magenta Corporation sells the land for $250,000 and distributes the proceeds pro rata to Mark and Megan.What amount of loss may Magenta Corporation recognize on the sale of the land?

Accepted Answer

A) $0. 
B) $21,000. 
C) $30,000. 
D) $70,000. 
E) None of the above.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Compare the sale of a corporation's assets with a sale of its stock from the perspective of the seller.

Accepted Answer

The answer of Compare the sale of a corporation's assets...

Question 7

Lyon has 100,000 shares outstanding that are worth $10 per share.It uses 32% of its stock plus $80,000 to

Accepted Answer

The answer of Lyon has 100,000 shares outstanding that are...

Question 8

Which of the following statements is true?

Accepted Answer

A) The dollar amounts involved in reorganizations are generally substantial; thus, it is important that the financial and tax treatment of the reorganization is consistent. 
B) A letter ruling indicates the income tax treatment the IRS will apply to the proposed corporate restructuring transaction. 
C) Careful planning can ensure that all gains recognized by individual shareholders receive beneficial dividend treatment. 
D) Corporations prefer to recognize capital gains on reorganizations because they can offset the capital losses they may have. 
E) None of the statements is true.

Question 9

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

Accepted Answer

A) Assets are transferred from one corporation to another. 
B) Stock is exchanged with shareholders. 
C) Liabilities that are assumed when cash is also used as consideration will be treated as boot. 
D) Corporations and shareholders involved in the reorganization may recognize gains but not losses. 
E) None of the above statements is true.

Question 10

Mary and Jane, unrelated taxpayers, own Gray Corporation's stock equally.One year before the complete liquidation of Gray, Mary transfers land (basis of $420,000, fair market value of $350,000) to Gray Corporation as a contribution to capital.Assume that Mary also contributed other property in the same transaction having a basis of $20,000 and fair market value of $95,000.In liquidation, Gray distributes the land to Jane.At the time of the liquidation, the land is worth $290,000.

Accepted Answer

The answer of Mary and Jane, unrelated taxpayers, own Gray...

Question 11

The Federal income tax treatment of a corporate restructuring is an extension of allowing entities to form without taxation.

Accepted Answer

A) True 
 B)False

Question 12

Yoko purchased 10% of Toyger Corporation's stock six years ago for $70,000.In a transaction qualifying as a "Type C" reorganization, Yoko received $50,000 cash and 8% of Angora Corporation's stock (valued at $100,000) in exchange for her Toyger stock.Prior to the reorganization, Toyger had $200,000 accumulated earnings and profits and Angora had $300,000.How does Yoko treat the exchange for tax purposes?

Accepted Answer

A) As a recognized $50,000 long-term capital gain. 
B) As a $50,000 dividend. 
C) As a $20,000 dividend and a $30,000 capital gain. 
D) As a $30,000 dividend and a $20,000 capital gain. 
E) None of the above.

Question 13

Discuss the role of letter rulings in corporate reorganizations.

Accepted Answer

The answer of Discuss the role of letter rulings in...

Question 14

In corporate reorganizations, an acquiring corporation using property other than stock as consideration may recognize gains but not losses on the transaction.

Accepted Answer

A) True 
 B)False

Question 15

Corporate shareholders would prefer to have a gain on a reorganization treated as a dividend rather than as a capital gain, because of the dividends received deduction.

Accepted Answer

A) True 
 B)False

Question 16

Bobcat Corporation redeems all of Zeb's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash.Zeb'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 Van's are $75,000.How does Zeb treat this transaction for tax purposes?

Accepted Answer

A) No gain is recognized by Zeb in this reorganization. 
B) Zeb reports a $50,000 recognized dividend. 
C) Zeb reports a $50,000 recognized capital gain. 
D) Zeb reports a $40,000 recognized dividend and a $10,000 capital gain. 
E) Not enough information is available to determine proper treatment.

Question 17

Sparrow Corporation purchased 90% of the stock of Warbler Corporation eight years ago for $1 million. In the current year, Sparrow liquidates Warbler and acquires assets with a basis to Warbler of $850,000 (fair market value of $1.2 million). Sparrow will have a basis in the assets of $850,000 (Warbler's basis in the assets), and a recognized loss of $150,000 ($1 million basis in Warbler stock - $850,000 carryover basis in assets).

Accepted Answer

A) True 
 B)False

Question 18

In 1916, the Supreme Court decided that corporate reorganizations were substantially continuations of the prior entities and thus should not be subject to taxation.

Accepted Answer

A) True 
 B)False

Question 19

As a general rule, a liquidating corporation recognizes gains but not losses on the distribution of property in complete liquidation.

Accepted Answer

A) True 
 B)False

Question 20

What will cause the corporations involved in a § 368 reorganization to recognize gain or loss? What will cause shareholders of the companies involved in the corporate reorganization to recognize gain or loss? If gain is recognized by shareholders, what are the different tax character possibilities?

Accepted Answer

The answer of What will cause the corporations involved in...

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

The determination of whether a shareholder's gain qualifies for stock redemption treatment in a corporate reorganization is based on the reduction in the percentage of the stock held in the target corporation when compared to the percentage held in the acquiring corporation.

Noncorporate shareholders may elect out of § 368 and recognize losses when property subject to a liability is distributed to them in a corporate reorganization.

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

Compare the sale of a corporation's assets with a sale of its stock from the perspective of the seller.

Lyon has 100,000 shares outstanding that are worth $10 per share.It uses 32% of its stock plus $80,000 to

Which of the following statements is true?

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

The Federal income tax treatment of a corporate restructuring is an extension of allowing entities to form without taxation.

Discuss the role of letter rulings in corporate reorganizations.

In corporate reorganizations, an acquiring corporation using property other than stock as consideration may recognize gains but not losses on the transaction.

Corporate shareholders would prefer to have a gain on a reorganization treated as a dividend rather than as a capital gain, because of the dividends received deduction.

In 1916, the Supreme Court decided that corporate reorganizations were substantially continuations of the prior entities and thus should not be subject to taxation.

As a general rule, a liquidating corporation recognizes gains but not losses on the distribution of property in complete liquidation.