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

A) True
B) False

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

A) True
B) False

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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.

E) A) and B)
F) A) and C)

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Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $100,000. What amount of gain or loss does Mike recognize in the complete liquidation? Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $100,000. What amount of gain or loss does Mike recognize in the complete liquidation?

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Mike recognizes gain of $150,000 on the ...

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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.

E) A) and D)
F) B) and C)

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Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $100,000. What amount of gain or loss does Michelle recognize in the complete liquidation and what is her tax basis in the building and land after the complete liquidation? Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $100,000. What amount of gain or loss does Michelle recognize in the complete liquidation and what is her tax basis in the building and land after the complete liquidation?

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Michelle recognizes gain of $200,000 on ...

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


A) If the basis of a property transferred to a corporation under section 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 section 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 section 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 section 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.

E) C) and D)
F) B) and C)

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

A) True
B) False

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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.

E) None of the above
F) C) and D)

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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.

E) B) and D)
F) None of the above

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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.

A) True
B) False

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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 section 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 section 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 section 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 section 351.

E) B) and C)
F) B) and D)

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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.

A) True
B) False

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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 Rachelle's tax basis in the stock received in the exchange?


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

E) A) and C)
F) None of the above

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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.

E) A) and D)
F) None of the above

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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

E) A) and D)
F) All of the above

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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.

E) A) and D)
F) None of the above

Correct Answer

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Mandel transferred property to his new corporation in a section 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.

A) True
B) False

Correct Answer

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Gain or loss is always recognized when realized for tax purposes.

A) True
B) False

Correct Answer

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Billie transferred her 20 percent interest to Jean Company as part of a complete liquidation of the company. In the exchange, she received land with a fair market value of $200,000. Billie's basis in the Jean stock was $100,000. The land had a basis to Jean Company of $400,000. What amount of loss does Jean recognize in the exchange and what is Billie's basis in the land she receives? Billie is not considered a related party to Jean Company.


A) $200,000 loss recognized by Jean and a basis in the land of $200,000 to Billie.
B) $200,000 loss recognized by Jean and a basis in the land of $400,000 to Billie.
C) No loss recognized by Jean and a basis in the land of $200,000 to Billie.
D) No loss recognized by Jean and a basis in the land of $400,000 to Billie.

E) None of the above
F) A) and B)

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