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Exam 8: Corporate Formation, Reorganization, and Liquidation

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Question 31

True/False

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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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Question 32

Multiple Choice

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Julian transferred 100 percent of his stock in Lemon Company to Apricot Corporation in a Type B stock-for-stock exchange. In exchange, he received stock in Apricot with a fair market value of $205,000. Julian's tax basis in the Lemon stock was $410,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

A) $205,000 loss recognized and a basis in Apricot stock of $205,000
B) No loss recognized and a basis in Apricot stock of $410,000
C) $205,000 loss recognized and a basis in Apricot stock of $410,000
D) No loss recognized and a basis in Apricot stock of $205,000

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

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Question 33

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Which of the following amounts is not included in the computation of amount realized in an exchange?

Control as it relates to a §351 transaction is strictly defined to be 80 percent or more of the voting power of the stock of the corporation to which property is transferred.

Which of the following principles does not need to be satisfied for an acquisition to be a tax-deferred reorganization?

Rich and Rita propose to have their corporation, Big Blue, acquire another corporation, Green Company, in a stock-for-stock Type B acquisition. The sole shareholder of Green, Mark Dee, will receive $500,000 of Big Blue voting stock in the transaction. Mark's tax basis in his Green stock is $100,000. What is Mark's tax basis in the Big Blue stock he receives in the exchange and what is Big Blue's basis in the Green stock it receives in return?

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 $532,500 plus $532,500 in cash. Celeste's tax basis in the Supply Chain stock was $1,455,000. What amount of loss does Celeste recognize in the exchange and what is her basis in the Marketing stock she receives?

Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a corporation in exchange for stock with a fair market value of $2,000 and $500 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $500 on the property transferred. What is Ashley's tax basis in the stock received in the exchange?

Which of the following statements best describes the tax benefits that arise from the sale of §1244 stock?

Katarina transferred her 10 percent interest to Spartan Company as part of a complete liquidation of the company. In the exchange, she received land with a fair market value of $200,000. Katarina's basis in the Spartan stock was $100,000. The land had a basis to Spartan Company of $50,000. What amount of gain does Spartan recognize in the exchange and what is Katarina's basis in the land she receives?

Antoine transfers property with a tax basis of $535 and a fair market value of $652 to a corporation in exchange for stock with a fair market value of $555 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $97 on the property transferred. What is Antoine's tax basis in the stock received in the exchange?

Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 in cash in a transaction that qualifies for deferral under §351. The corporation assumed a liability of $50 on the property transferred. What is Roy's tax basis in the stock received in the exchange?

Tristan transfers property with a tax basis of $920 and a fair market value of $1,600 to a corporation in exchange for stock with a fair market value of $920 and $426 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $254 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

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

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?

Ashley transfers property with a tax basis of $8,240 and a fair market value of $4,840 to a corporation in exchange for stock with a fair market value of $3,400 and $525 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $915 on the property transferred. What is Ashley's tax basis in the stock received in the exchange?

Francine 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 $60,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $150,000. a. What amount of gain or loss does Francine realize on the transfer of the property to her corporation? b. What amount of gain or loss does Francine recognize on the transfer of the property to her corporation? c. What is Francine's basis in the stock she receives in her corporation?

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

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

Jasmine transferred 100 percent of her stock in Emerald Company to Jade Corporation in a Type A merger. In exchange she received stock in Jade with a fair market value of $800,000 plus $1,200,000 in cash. Jasmine's tax basis in the Emerald stock was $900,000. What amount of gain does Jasmine recognize in the exchange and what is her basis in the Jade stock she receives?