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Exam 8: Corporate Formation, Reorganization, and Liquidation

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Question 51

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Zhao incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases. The corporation also assumed a mortgage of $50,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $330,000. The transaction met the requirements to be tax-deferred under §351. a. What amount of gain or loss does Zhao realize on the transfer of the property to her corporation? b. What amount of gain or loss does Zhao recognize on the transfer of the property to her corporation? c. What is the corporation's adjusted basis in each of the assets received in the exchange?

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a. $70,000 gain
b. Zhao does not recogn...

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Question 52

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Which of the following statements best describes a section 338 transaction?

A) A section 338 transaction is an election made by the buyer to treat a stock acquisition as an asset acquisition.
B) A section 338 transaction is an election made by the buyer to treat an asset acquisition as a stock acquisition.
C) A section 338 transaction is an election made by the seller to treat a stock acquisition as an asset acquisition.
D) A section 338 transaction is an election made by the seller to treat an asset acquisition as a stock acquisition.

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

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Question 53

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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?

Which of the following class of stock is not allowed to be used in a section 351 transaction?

Which of the following statements best describes the tax results to a shareholder in a section 351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

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 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. No boot is allowed in a Type B reorganization. Additional consideration of as little as $1 can taint the transaction and cause it to be fully taxable.

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

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. The stock generally takes a substituted basis equal to the tax basis in the shareholder's stock in the target corporation.

Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock with a fair market value of $3,000 and $2,000 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stock received in the exchange?

Keegan incorporated his sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases. The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Keegan. Assuming the gain or loss realized in Problem 1 is deferred under §351, what is Keegan's basis in the stock he receives in his corporation?

Harry and Sally formed Empire Corporation on January 2. Harry contributed cash of $500,000 in return for 50 percent of the corporation's stock. Sally contributed a building and land with the following fair market values and adjusted basis in return for 50 percent of the corporation's stock. To equalize the exchange, Empire Corporation paid Sally $100,000 in addition to her stock. a. What amount of gain or loss does Sally realize on the formation of the corporation? b. What amount of gain or loss, if any, does she recognize? c. What is Sally's tax basis in the stock she receives in return for her contribution of property to the corporation? d. What adjusted basis does Empire Corporation take in the land and building received from Sally?

Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Inc. After liquidating its remaining inventory and paying off its remaining liabilities, Amelia had the following tax accounting balance sheet. Under the terms of the agreement, Gary will receive the $100,000 cash in exchange for his interest in Amelia. Gary's tax basis in his Amelia stock is $30,000. Laura will receive the building and land in exchange for her interest in Amelia. Laura's tax basis in her Amelia stock is $60,000. What amount of gain or loss does Amelia recognize in the complete liquidation?

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?

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 Pennsylvania recognize in the complete liquidation?

Juan transferred 100 percent of his stock in Rosa Company to Azul Corporation in a Type B stock-for stock exchange. In exchange, he received stock in Azul with a fair market value of $1,000,000. Juan's tax basis in the Rosa stock was $400,000. What amount of gain does Juan recognize in the exchange and what is his basis in the Azul stock he receives?

Robin transferred her 60 percent interest to Cardinal Company as part of a complete liquidation of the company. In the exchange, she received land with a fair market value of $800,000. Robin's basis in the Cardinal stock was $900,000. The land had a basis to Cardinal Company of $1,000,000. What amount of loss does Cardinal recognize in the exchange and what is Robin's basis in the land she receives? The distribution was non pro rata to Robin, a related person.

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?

In a tax-deferred transaction, the calculation of a taxpayer's tax basis in property always begins with its cost to the taxpayer. In tax-deferred transactions, the adjusted basis begins with the tax basis of the property exchanged in the transaction.

Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $350 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is the amount realized by Roberta in the exchange?