Deck 6: Corporate Liquidating Distributions

Question 1

Liquidation rules generally are applied the same to the following organizations except for

A) S corporations.
B) C corporations.
C) subsidiary corporations (80% controlled).
D) subsidiary corporations (less than 80% controlled).

Answer 1

C

Question 2

Moya Corporation adopted a plan of liquidation last year. All but a nominal amount of Moya's assets are distributed to its shareholders within the year. Which of the following statements is not true?

A) Moya Corporation's existence is preserved.
B) Moya Corporation has been liquidated for tax purposes.
C) Moya Corporation retains its state charter.
D) The liquidation of Moya Corporation means the corporation has undergone dissolution.

Answer 2

D

Question 3

Are liquidation and dissolution the same? Explain your answer.

Answer 3

Liquidation status continues from the time the plan of liquidation has been formally or informally adopted until the corporation ceases to be a going concern or until it has divested itself of all its property. Dissolution is a legal term that implies that the corporation has surrendered the charter it originally received from the state. A corporation generally may complete its liquidation prior to undergoing dissolution. Dissolution may never occur if the corporation retains its charter to protect its corporate name from being acquired by another party.

Question 4

In a complete liquidation of a corporation, which of the following is false?

A) The liquidation of a corporation means it has undergone dissolution.
B) The corporation ceases to be a going concern.
C) The corporation divests itself of substantially all its properties.
D) All stock of the liquidating corporation is canceled or redeemed.

Question 5

Section 336 prevents recognition of a loss when making a pro rata distribution of property to a related person.

Question 6

The adjusted basis of property received in a complete liquidation is its fair market value on the distribution date.

Question 7

Texas Corporation is undergoing a complete liquidation and distributes land to Robert, one of its shareholders, in exchange for all of Robert's stock. The land has a basis of $300,000 and an FMV of $400,000 on Texas Corporation's books and is subject to a $325,000 liability. Robert assumes the liability on the property. Robert's basis in his Texas Corporation stock is $100,000. What is the amount of gain or loss recognized by Robert on the distribution?

A) $25,000 loss
B) $25,000 gain
C) $175,000 gain
D) No gain or loss is recognized.

Question 8

Identify which of the following statements is true.

A) The liquidating corporation does not recognize gains and losses when making a distribution of nonmoney property.
B) In general, a noncorporate shareholder that receives a distribution in complete liquidation of the liquidating corporation recognizes his or her entire realized gain as a capital gain.
C) The basis for nonmoney property received by a noncorporate shareholder as part of a liquidating distribution is the same as its basis on the books of the liquidating corporation.
D) All of the above are false.

Question 9

Riverwalk Corporation is liquidated, with Juan receiving $5,000 in money, other property having a $6,000 FMV, and a $1,000 mortgage on the property. Juan's basis in his River walk stock is $8,000. Upon liquidation, Juan must recognize a gain of

A) $3,000.
B) 0.
C) $2,000.
D) $11,000.

Question 10

Bluebird Corporation owns and operates busses and has decided to liquidate its operations. Victor, who owns 80% of the company's stock, will receive all of the busses, repair parts inventory, and all tools and equipment. He plans to start a bus company in another town. Penny, who owns 20% of the stock, wants nothing to do with the new bus business and will receive a cash distribution. Bluebird will incur about $20,000 of expenses in connection with the liquidation. What tax issues should Victor, Penny, and Bluebird consider with respect to the liquidation?

Question 11

Riverwalk Corporation is liquidated, with Juan receiving $5,000 in money and other property having a $6,000 FMV. Juan's basis in his Riverwalk stock is $8,000. Upon liquidation, Juan must recognize a gain of

A) $2,000.
B) $3,000.
C) $11,000.
D) 0.

Question 12

In a complete liquidation, a liability assumed by a shareholder reduces the shareholder's amount realized.

Question 13

Identify which of the following statements is true.

A) An accrual method of accounting taxpayer recognizes his/her realized gain on a corporate liquidation when there has been actual or constructive receipt of the liquidating distribution(s).
B) The method of accounting used by shareholders involved in a complete liquidation is relevant when determining the year in which the shareholder's gain or loss should be reported.
C) If a shareholder assumes or acquires liabilities of the liquidating corporation, the amount of these liabilities does not reduce the amount realized by the shareholder.
D) All of the above are false.

Question 14

Robot Corporation is liquidated, with Marty receiving property having an adjusted basis of $60,000 and an FMV of $90,000. The property is subject to an $80,000 mortgage, which Marty assumes. Marty's basis in the Robot stock surrendered is $50,000. Marty must recognize

A) a $60,000 gain.
B) no gain or loss.
C) a $40,000 loss.
D) none of the above

Question 15

Generally, a corporation recognizes a gain, but not a loss, on a liquidating distribution.

Question 16

When a corporation liquidates, it performs three activities. What is the general order of these activities in a plan of liquidation?

A) pay debts, distribute property to shareholders, and wind up its affairs
B) wind up its affairs, pay debts, and distribute property to shareholders
C) wind up its affairs, distribute property to shareholders, pay debts
D) pay debts, wind up its affairs, and distribute property to shareholders

Question 17

Property received in a corporate liquidation by a noncorporate shareholder has

A) a basis equal to its FMV. Its holding period commences on the day after the distribution date.
B) a basis equal to its FMV reduced by any liabilities assumed by the shareholder. Its holding period commences on the day after the distribution date.
C) a basis equal to its basis on the liquidating corporation's books increased by any gain recognized by the shareholder upon receipt of the property. Its holding period commences on the day after the distribution date.
D) a basis equal to its basis on the liquidating corporation's books increased by any gain recognized by the shareholder upon receipt of the property. Its holding period includes the holding period of the shareholder's stock.

Question 18

In general, a noncorporate shareholder that receives a distribution in complete liquidation of the liquidating corporation recognizes his or her entire realized gain as a capital gain.

Question 19

Identify which of the following statements is false.

A) Baker Corporation was formed in a Sec. 351 exchange three years ago by Emil, Fred, and George who own equal stock interests. The corporation can be liquidated tax- free under the special liquidation rules of Secs. 332 and 337.
B) The tax attributes of the liquidating corporation carry over to the shareholders when the liquidation is conducted under the general liquidation rules.
C) The terms "liquidation" and "dissolution" are synonymous.
D) All of the above are false.

Question 20

Liquidation and dissolution have the same legal meaning.

Question 21

Identify which of the following statements is true.

A) The loss recognized by a corporate shareholder on the worthlessness of the controlled subsidiary's stock is an ordinary loss.
B) The loss that is recognized by an individual shareholder on the liquidation of a corporation is a capital loss, up to certain limits, if the stock is Sec. 1244 stock.
C) A loss recognized by a shareholder upon complete liquidation of a corporation may not qualify for ordinary loss treatment if the stock is Sec. 1244 stock.
D) All of the above are false.

Question 22

Barnett Corporation owns an office building that cost $900,000. Barnett has taken $600,000 of depreciation on the building. The property is subject to a $600,000 mortgage. The office building has a current FMV of $400,000. Barnett Corporation is liquidated and the office building is distributed to a single individual shareholder who assumes the mortgage. Barnett Corporation must recognize

A) no gain or loss.
B) a $300,000 gain.
C) a $100,000 gain.
D) none of the above

Question 23

Lake Corporation distributes a building used in its business to Sandy in exchange for all of her Lake stock. Sandy's basis in her stock is $30,000 and the property she receives has a $90,000 FMV. As part of the distribution, Sandy assumes a liability associated with the property of $65,000. The property's basis prior to the liquidating distribution was $25,000. What are the tax consequences of the distribution to Sandy? To Lake Corporation?

Question 24

Albert receives a liquidating distribution from Glidden Corporation as part of a complete redemption of its stock. Albert receives cash of $5,000 and other property with an adjusted basis of $6,000 and an FMV of $10,000. Albert's basis in the Glidden stock surrendered is $8,000. How much gain does he recognize?

Question 25

Mary receives a liquidating distribution from Snell Corporation as part of a redemption of all of its stock. Mary's basis in the Snell stock is $10,000. In exchange for her stock, Mary receives property with an $8,000 basis and a
$15,000 FMV that is subject to a $3,000 mortgage. Mary also receives cash of $5,000. What is Mary's recognized gain?

Question 26

Dexer Corporation is owned 70% by Amy and 30% by Brad. Dexer Corporation owns Eagle Corporation stock with a $50,000 adjusted basis and a $30,000 FMV. The stock is not disqualified property. As part of a complete liquidation, the Eagle Corporation stock is distributed to Amy. Amy's basis in her Dexer stock is $40,000. Dexer Corporation will recognize

A) no loss.
B) a $20,000 loss.
C) a $10,000 loss.
D) none of the above

Question 27

Last year, Toby made a capital contribution of a pretzel maker having a $2,000 adjusted basis and a $200 FMV to Keke Corporation in exchange for additional stock. This year, Keke Corporation adopted a plan of liquidation. Prior to the adoption of the liquidation plan, Keke had not used the pretzel maker in connection with the conduct of its trade or business. Which of the following statements is true?

A) Keke Corporation may recognize a loss of $200.
B) Keke Corporation's basis for determining the loss will be $2,000.
C) Keke Corporation may recognize a loss of $1,800.
D) Keke Corporation's basis for determining the loss will be $200.

Question 28

Identify which of the following statements is true.

A) Properties acquired by a liquidating corporation as a capital contribution occurring within three years of the adoption of a plan of liquidation are generally presumed to have a tax avoidance motive.
B) The loss realized on the sale of a property is disallowed when such property was received by a corporation as a contribution of capital in a transaction having as its principal purpose the recognition of loss pursuant to the corporation's subsequent liquidation later in the same taxable year.
C) Losses claimed in a tax return filed before the adoption of the plan of liquidation are not restricted by Sec. 336(d)(2).
D) All of the above are false.

Question 29

Toby made a capital contribution of a pretzel maker having a $2,000 adjusted basis and a $200 FMV to Keke Corporation in exchange for additional stock last year. Later that same year, Keke sold the pretzel maker for $300. This year, Keke adopted a plan of liquidation. Previously, Keke had never used the pretzel maker in connection with the conduct of its trade or business. The sale was reported on Keke's current tax return. What reporting option does Keke Corporation not have because of its plan of liquidation?

A) Recognize a gain of $100 for the current year.
B) File an amended tax return for the tax year in which the tax loss was originally claimed.
C) Recapture the loss on the tax return for the year the plan for liquidation was adopted.
D) none of the above

Question 30

Under the general liquidation rules, Missouri Corporation is liquidated, with Jefferson receiving $5,000 in cash plus other property having a $6,000 FMV and assuming a $2,000 mortgage on the property. Jefferson's basis in his Missouri stock is $8,000. What is Jefferson's amount realized and gain or loss recognized on the liquidation?

Question 31

Under a plan of complete liquidation, Key Corporation distributes land (not a disqualified property) with an adjusted basis of $410,000 and an FMV of $300,000 for all Sharon's stock. Sharon's basis in her 5% interest in the Key stock is $250,000. Find Sharon's basis in the land and Key Corporation's recognized gain or loss.

A) $$\begin{array} { | l | l | } \hline \text { Basis } & \text { RecognizedGain/Loss } \\\hline \$ 300,000 & \$ 110,000 \text { loss } \\\hline\end{array}$$
B) $$\begin{array} { | l | l | } \hline \text { Basis } & \text { RecognizedGain/Loss } \\\hline \$ 250,000 & \$ 110,000 \text { loss } \\\hline\end{array}$$
C) $$\begin{array} { | l | l | } \hline \text { Basis } & \text { RecognizedGain/Loss } \\\hline \$ 250,000 & \$ 0 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | } \hline \text { Basis } & \text { RecognizedGain/Loss } \\\hline \$ 300,000 & \$ 0 \\\hline\end{array}$$

Question 32

Identify which of the following statements is true.

A) When computing the corporate- level gain on a liquidating distribution, the FMV of the property cannot exceed the liability assumed or acquired by the shareholder.
B) The FMV of property distributed by a liquidating corporation can be less than the amount of the liability assumed or acquired by the shareholder.
C) With limited exceptions, a loss can be recognized by a liquidating corporation when it makes a liquidating distribution of property that has declined in value.
D) All of the above are false.

Question 33

Charlene and Dennis each own 50% of Brewster Corporation and have owned it for five years. The adjusted bases of their Brewster stock are $80,000 and $40,000 respectively. Brewster Corporation liquidates and distributes $60,000 to Charlene in exchange for her stock. It distributes a parcel of land with a $140,000 FMV which is subject to a $90,000 mortgage to Dennis in exchange for his stock. Dennis assumes the mortgage and als receives $10,000 in cash.
a) What is the character and amount of each shareholder's gain or loss?
b) What is each shareholder's basis in the property received in the liquidation?

Question 34

Under the general liquidation rules, Kansas Corporation is liquidated, with Sam Topeka receiving $20,000 in cash plus other property having a $24,000 FMV. Sam Topeka's basis in his Kansas stock is $32,000. What is Sam Topeka's amount realized and gain recognized on the liquidation?

Question 35

Identify which of the following statements is true.

A) Section 336 prevents recognition of a loss when making a pro rata distribution of property to a related person.
B) A liquidating distribution of property other than a disqualified property that is made ratably to all shareholders (based on their stockholdings) will permit the recognition of loss on the portion of the distribution that is made to a related person.
C) A subsidiary corporation can recognize losses on distributions to either the parent corporation or minority shareholders in a Sec. 332 liquidation.
D) All of the above are false.

Question 36

Jack Corporation is owned 75% by Sherri and 25% by Mark. Sherri and Mark have $125,000 and $50,000 bases in their stock, respectively. Jack Corporation adopts a plan of liquidation on March 1. On April 12, Sherri receives the following property as a liquidating distribution: cash of $30,000; land, $125,000 FMV; and 150 shares of Green Corporation stock, $30,000 FMV. The land is subject to a $20,000 mortgage. On the same date, Mark receiv
$10,000 FMV of Green stock (50 shares) and cash of $45,000 as a liquidating distribution. The land has a basis of $ and the stock has a basis of $70,000 in Jack Corporation's hands. Both are capital assets to Jack Corporation and h been held for a number of years.
a) What is the amount and character of Jack Corporation's recognized gain or loss on the liquidating distributio
b) What are the amounts and characters of Sherri and Mark's recognized gains or losses?
c) What are the bases of the land and stock to Sherri and Mark?

Question 37

Under a plan of complete liquidation, Coast Corporation distributes land with a $300,000 adjusted basis and a $400,000 FMV to William, a 25% shareholder. William has a $200,000 basis in his Coast stock. The land is inventory in the hands of Coast Corporation. Coast Corporation must recognize

A) $200,000 of ordinary income.
B) $100,000 of long- term capital gain.
C) no gain.
D) $100,000 of ordinary income.

Question 38

The stock of Cooper Corporation is 70% owned by Carole and 30% owned by Carole's brother, Chris. During 2017, Chris transferred property (basis of $100,000 and FMV of $120,000) as a contribution to the capital of Cooper. During February 2018, Cooper adopted a plan of liquidation and subsequently made a pro rata distribution of the property back to Carole and Chris. At the time of the liquidation, the property had an FMV of $80,000. What amount of loss can be recognized by Cooper on the distribution of property?

A) $12,000
B) $20,000
C) $6,000
D) $0

Question 39

John and June, husband and wife, have owned Ruby Corporation for a number of years. Their basis in the Ruby stock, which they own jointly, is $200,000. The Ruby stock is Sec. 1244 stock. Ruby Corporation liquidates, and John and June receive the following from the corporation: accounts receivable, $30,000 FMV; a car, $21,000 FMV; office furniture, $11,000 FMV; and $25,000 in cash. What is the amount and character of their gain or loss?

Question 40

How is the gain/loss calculated if a shareholder has acquired stock at different times and at varying prices?

Question 41

Under Illinois Corporation's plan of liquidation, the corporation distributes land to one of its shareholders, Springer. The land, which is used in Illinois trade or business, has a $20,000 adjusted basis and a $60,000 FMV on the distribution date. What are the tax consequences of this distribution to Illinois and Springer?

Question 42

A subsidiary must recognize depreciation recapture income when the subsidiary is liquidated into the parent.

Question 43

Parent Corporation owns 100% of the single class of stock of Subsidiary Corporation. Parent's basis in the Subsidiary stock is $500,000 when Parent completely liquidates Subsidiary Corporation within a single tax year. The Subsidiary Corporation assets have a $700,000 adjusted basis and an $800,000 FMV at liquidation. As a result of the liquidation, Parent must recognize a

A) $200,000 gain.
B) $0 gain.
C) $300,000 gain.
D) none of the above

Question 44

Identify which of the following statements is true.

A) A parent corporation cannot liquidate a subsidiary corporation (having but a single class of stock) and avoid recognizing its realized gain unless the parent corporation owns at least 80% of the subsidiary's stock.
B) The provisions permitting a tax- free liquidation of a subsidiary corporation apply to both corporate and noncorporate shareholders of the subsidiary.
C) The liquidation of a subsidiary corporation must be completed within one tax year to receive nonrecognition treatment.
D) All of the above are false.

Question 45

Explain the difference in tax treatment between a partial liquidation and a complete liquidation.

Question 46

Identify which of the following statements is false.

A) The parent corporation takes a basis in property received when liquidating a subsidiary corporation in a Sec. 332 liquidation equal to its basis to the subsidiary corporation.
B) Property received by a minority shareholder takes a basis equal to its fair market value.
C) Section 332 is applicable to both the parent corporation and the minority shareholders if they exist.
D) Minority shareholders involved in a Sec. 332 subsidiary liquidation must recognize a gain or loss under the Sec. 331 general liquidation rules.

Question 47

Parent Corporation for ten years has owned all of the stock of Subsidiary Corporation, which manufactures widgets. Parent's basis in Subsidiary's stock is $500,000. Subsidiary Corporation is insolvent and has no assets to redeem any of the stock that Parent Corporation owns when it liquidates. Nearly all of Subsidiary's gross income during the past five years has come from nonpassive activities. Parent can recognize

A) a $500,000 long- term capital loss.
B) a $500,000 ordinary loss.
C) a $500,000 bad debt deduction.
D) a $500,000 short- term capital loss.

Question 48

Lake City Corporation owns all the stock in Columbia Corporation. Pursuant to a plan of complete liquidation, Columbia distributes land having a $500,000 FMV and a $200,000 basis to Lake City. Columbia's gain with respect to the distribution will be

A) $500,000.
B) $300,000.
C) $200,000.
D) no gain recognized.

Question 49

A subsidiary recognizes no gain or loss on a distribution to a parent corporation owning the majority of the subsidiary's stock in a complete liquidation.

Question 50

Carly owns 25% of Base Corporation's single class of stock and Premier Corporation owns the remaining 75%. Carly's basis in the Base stock is $200,000 and Premier Corporation's basis in the Base stock is $600,000. Carly receives property with a $175,000 adjusted basis and a $250,000 FMV and Premier Corporation receives property with a $600,000 adjusted basis and a $750,000 FMV in complete liquidation of Base Corporation. All of Base's cash is used to pay its liabilities. Which of following statements is correct concerning the tax effects of the liquidation?

A) Carly will not recognize any gain but Premier will recognize some gain.
B) Carly will recognize some gain but Premier Corporation will not recognize any gain.
C) Neither Carly nor Premier Corporation will recognize a gain.
D) Both Carly and Premier will recognize some gain.

Question 51

Under what circumstances does a liquidating corporation not recognize a gain or loss when making a distribution?

Question 52

When a subsidiary corporation is liquidated into its parent corporation under a formal plan of liquidation, the distributions must take place within

A) a six- month period.
B) the current and next three tax years.
C) the current and next tax years.
D) a 12- month period.

Question 53

Chip and Dale are each 50% owners of Tree Corporation, a holding company. They have each held their stock since the company was formed five years ago. Tree's money is invested almost entirely in stocks, bonds, rental real estate, and land. All of the stocks are traded on the New York Stock Exchange except for 1,000 shares of Conifer Corporation stock. Conifer is privately held by 50 individuals. Last year, Conifer reported about $2 million in net income. During a meeting with Chip and Dale, you discover that they plan to liquidate Tree Corporation as soon as possible to avoid the personal holding company tax. What tax issues should Chip and Dale consider with respect to this liquidation?

Question 54

The liquidation of a subsidiary corporation must be completed within one tax year to receive nonrecognition treatment.

Question 55

Identify which of the following statements is false.

A) Sec. 337(a) provides that the liquidating corporation recognizes no gain or loss on the distribution of property to the 80% distributee in a complete Sec. 332 liquidation.
B) A corporation that distributes the stock of a subsidiary may elect to treat the distribution as a sale of the subsidiary's assets.
C) The depreciation recapture provisions in Secs. 1245 and 1250 override the Sec. 337(a) nonrecognition rule if a controlled subsidiary corporation is liquidated into its parent corporation.
D) Liquidating distributions made to minority shareholders in the tax- free liquidation of a controlled subsidiary corporation are treated by the liquidating corporation in the same way as nonliquidating distributions.

Question 56

The general rule for tax attributes of liquidating corporations is

A) they disappear when the liquidation is complete.
B) they carry over for an indefinite period of time.
C) they disappear only for controlled subsidiary corporations.
D) they carry over for five years.

Question 57

Lake City Corporation owns all of the stock in Columbia Corporation. Pursuant to a plan of complete liquidation, Columbia distributes land having a $500,000 FMV and a $200,000 basis to Lake City. Lake City's basis in the land will be

A) 0.
B) $500,000.
C) $200,000.
D) cannot be determined from the facts presented

Question 58

Market Corporation owns 100% of Subsidiary Corporation's stock. Market Corporation completely liquidates Subsidiary Corporation, receiving land with a $400,000 adjusted basis and a $500,000 FMV in exchange for Subsidiary stock, which has a $300,000 adjusted basis. Market Corporation has a basis in the land of

A) $500,000.
B) $300,000.
C) $400,000.
D) none of the above

Question 59

Specialty Corporation distributes land to one of its shareholders, Sam, as part of a plan of liquidation. The land, which was used in Specialty's business, has an adjusted basis of $50,000 and an FMV of $130,000 on the date of distribution. Sam's basis in Specialty Corporation stock is $100,000. What is the amount and character of the gain/loss recognized by Specialty Corporation? What is the amount and character of the gain/loss recognized by Sam?

Question 60

What event determines when a cash or accrual method of accounting taxpayer reports a liquidating distribution?

Question 61

What basis do both the parent and minority shareholders take in the assets received in a Sec. 332 liquidation?

Question 62

Parent Corporation owns 100% of the stock of Subsidiary Corporation. The adjusted basis of its stock investment
$100,000. A plan of liquidation is adopted. Subsidiary distributes to Parent assets with a $325,000 FMV and a $27 adjusted basis. Subsidiary also distributes liabilities in the amount of $40,000. Subsidiary has a $150,000 E&P bal
a) What is the amount and character of Subsidiary Corporation's recognized gain or loss on the distribution?
b) What is the amount and character of Parent Corporation's recognized gain or loss on the redemption of the Subsidiary stock?
c) What basis does Parent take in the assets?
d) What happens to parent Corporation's basis in the Subsidiary stock and to Subsidiary's tax attributes?

Question 63

Barbara owns 100 shares of Bond Corporation stock with a basis of $40,000. Barbara receives two liquidating distributions, including $16,000 paid last year and $20,000 paid in the current year. An additional distribution of an undetermined amount is expected next year. On last year's tax return, Barbara can recognize a loss of

A) $1,000.
B) $4,000.
C) $0.
D) $14,000.

Question 64

What are the differences, if any, in the tax rules applying to distributions made to a parent corporation and a minority shareholder when a controlled corporation liquidates?

Question 65

Identify which of the following statements is false.

A) An individual taxpayer, who is assessed an additional payment of money based on stock ownership in a corporation whose stock is redeemed in a complete liquidation, may recognize a capital loss to the extent of the additional assessment.
B) The open transaction doctrine defers the shareholder's gain or loss from a liquidation until the assets can be valued by sale or collection.
C) The IRS asserts that the open transaction doctrine should be used only in extraordinary circumstances.
D) The open transaction doctrine as applied to complete corporate liquidations refers to the numerous planning alternatives available when liquidating a corporation.

Question 66

In a Sec. 332 liquidation, what bases do both the parent and minority shareholders take in the assets received?

Question 67

Why should a corporation that is 100% owned by another corporation be treated differently when it liquidates than a corporation that is 100% owned by an individual?

Question 68

What attributes of a controlled subsidiary corporation are carried over to the parent when the subsidiary is liquidated?

Question 69

During 2017, Track Corporation distributes property to Cindy as part of a complete liquidation. Property included in the distribution is $30,000 in cash, land with a $40,000 adjusted basis and a $60,000 FMV, and a copyright without an ascertainable FMV and having a zero basis. The first payment to Cindy of $8,000 for use of the copyrighted property occurs in 2018. Cindy has a basis in the Track stock of $95,000 immediately preceding the liquidation. The minimum amount of gain that Cindy must recognize is a

A) $0 gain in 2017.
B) $3,000 gain in 2018.
C) $3,000 gain in 2017, which is reported on an amended current- year tax return that is filed in 2018.
D) none of the above

Question 70

Parent Corporation owns 80% of the stock of an insolvent subsidiary corporation. Vic owns the remaining 20% of the stock. The courts determine the subsidiary to be bankrupt, and the shareholders receive nothing for their investment. How do they report their losses?

Question 71

Key Corporation distributes a patent with an indeterminable value to Gary as part of a plan of complete liquidation. In addition, Gary receives $40,000 cash and land with a $70,000 FMV and a $30,000 adjusted basis. Gary's basis in the Key stock (a capital asset) surrendered is $120,000. If Gary relies on the open transaction doctrine, at the liquidation date he must recognize a

A) $70,000 capital gain.
B) $10,000 capital loss.
C) $30,000 capital loss.
D) $0 gain.

Question 72

Hope Corporation was liquidated four years ago. Teresa reported a $40,000 long- term capital gain due to the liquidation on her individual tax return. This year, Teresa pays $6,000 as part of the settlement of a lawsuit against Hope. Due to the $6,000 payment, Teresa recognizes a

A) $6,000 short- term capital loss.
B) $6,000 ordinary loss.
C) $6,000 long- term capital loss.
D) none of the above

Question 73

Liquidating expenses are generally deducted as ordinary and necessary business expenses.

Question 74

Jack has a basis of $36,000 in his 1,000 shares of Acorn Corporation stock (a capital asset). The stock was acquired three years ago. He receives the following distributions as part of a plan of liquidation of Acorn Corporation: What are the amount and character of the gain or loss that Jack will recognize during 2017? During 2018?

Question 75

In a Sec. 332 liquidation, can a subsidiary corporation recognize losses on distributions to either the parent corporation or minority shareholders?

Question 76

New York Corporation adopts a plan of liquidation on March 15 and shortly thereafter sells a parcel of land on which it realizes a $15,000 gain (excluding the effects of a $2,000 sales commission). New York pays its legal counsel $500 to draft the plan of liquidation. All of New York's remaining properties are distributed to its shareholders on September 15. What are the tax consequences to New York on the land sale?

Question 77

Penny, a cash- basis taxpayer, reported a $15,000 long- term capital gain on the exchange of her Midwest Corporation stock when the corporation liquidated in 2016. Midwest subsequently lost a lawsuit and Penny paid an additional $3,000 in 2018 as her part of the settlement. What are the tax consequences to Penny in 2018 of the $3,000 additional payment she made?

Question 78

Identify which of the following statements is true.

A) Shareholders who receive an installment obligation as part of their liquidating distribution ordinarily report the FMV of their obligation as part of the consideration received to calculate the amount of recognized gain or loss.
B) Upon liquidation, any capitalized expenditures unamortized at the time of liquidation should be deducted if they have no further value to the corporation.
C) A liquidating corporation treats expenses associated with selling its property as an offset against the sales proceeds.
D) All of the above are true.

Question 79

Greg, a cash method of accounting taxpayer, owns 100 shares of Parker Corporation stock with a basis of $20,000. Greg receives two liquidating distributions of $8,000 on March 3 of last year, and $8,000 on August 8 of this year. The amount of the second distribution is not known until June 15 of this year. Greg recognizes

A) no loss last year and a $4,000 loss this year.
B) a gain of $8,000 last year and a loss of $12,000 this year.
C) a loss of $2,000 last year and a loss of $2,000 this year.
D) none of the above

Question 80

Sandy, a cash method of accounting taxpayer, has a basis of $46,000 in her 500 shares of Newt Corp stock. She receives the following distributions as part of Newt's plan of liquidation. $\begin{array}{|l|l|}\hline \text { March 31, 2017 } & \$ 10,000 \\\hline \text { July 15, 2017 } & 10,000 \\\hline \text { Nowember 15, 2017 } & 10,000 \\\hline \text { January 15, 2018 } & 10,000 \\\hline\end{array}$ The amount of the final distribution is not known on December 31, 2017. What are the tax conseque the distributions?

A) Sandy will recognize the entire loss in 2018.
B) Sandy will recognize a loss of $4,500 in 2017 and a $1,500 loss in 2018.
C) Sandy will recognize the entire loss in 2017.
D) None of the above is correct.