Question 1

Jupiter Corporation acquires all of Titian Corporation's stock in exchange for its voting stock.Iris received 1,000 shares of Jupiter valued at $50,000 for her 8,000 shares of Titian that cost Iris $100,000 five years ago.In addition to the Jupiter stock,she receives a $30,000 bond.How does Iris treat this transaction for tax purposes?

Accepted Answer

A) Iris recognizes a loss of $50,000.Her Jupiter stock basis is $50,000. 
B) Iris recognizes a loss of $20,000.Her Jupiter stock basis is $80,000. 
C) Iris recognizes a $20,000 loss and a $25,000 gain.Her Jupiter stock basis is $105,000. 
D) Iris realizes a $20,000 loss that is not recognized.Her Jupiter stock basis is $120,000. 
E) None of the above.

Question 2

Pursuant to a complete liquidation,Oriole Corporation distributes to its shareholders land with a basis of $450,000 and a fair market value of $550,000.The land is subject to a liability of $600,000.What is Oriole's recognized gain or loss on the distribution?

Accepted Answer

A) $0. 
B) $100,000 gain. 
C) $150,000 gain. 
D) $50,000 loss. 
E) None of the above.

Question 3

When a shareholder receives property subject to a liability pursuant to a complete liquidation (not a parent-subsidiary liquidation),the fair market value of the property is reduced by the amount of the liability in computing the shareholder's gain (or loss)on the liquidation.

Accepted Answer

A) True 
 B)False

Question 4

Carlos purchased 20% of Target Corporation's stock five years ago for $50,000.In a transaction qualifying as a "Type A" reorganization,Carlos received $40,000 cash and 6% of Acquiring Corporation's stock (valued at $60,000)in exchange for his Target stock.Target had $300,000 accumulated earnings and profits prior to the reorganization.How does Carlos treat the exchange for tax purposes?

Accepted Answer

A) As a sale of stock and recognizes a $50,000 long-term capital gain. 
B) As a sale of stock and recognizes a $10,000 long-term capital loss. 
C) As a dividend of $40,000. 
D) As a stock redemption and recognizes a $40,000 long-term capital gain. 
E) Not enough information is available to determine proper treatment.

Question 5

The tax basis of the stock and securities received by a shareholder pursuant to a tax-free reorganization generally is the same as the basis of the stock and securities surrendered.

Accepted Answer

A) True 
 B)False

Question 6

For purposes of the § 338 election,a corporation must acquire,in a taxable transaction,at least 50% of the stock (voting power and value)of another corporation within an 12-month period.

Accepted Answer

A) True 
 B)False

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

Pursuant to a complete liquidation,Oriole Corporation distributes to its shareholders land with a basis of $450,000 and a fair market value of $550,000.The land is subject to a liability of $600,000.What is Oriole's recognized gain or loss on the distribution?

When a shareholder receives property subject to a liability pursuant to a complete liquidation (not a parent-subsidiary liquidation),the fair market value of the property is reduced by the amount of the liability in computing the shareholder's gain (or loss)on the liquidation.

The tax basis of the stock and securities received by a shareholder pursuant to a tax-free reorganization generally is the same as the basis of the stock and securities surrendered.

For purposes of the § 338 election,a corporation must acquire,in a taxable transaction,at least 50% of the stock (voting power and value)of another corporation within an 12-month period.