Deck 6: Corporations: Redemptions and Liquidations

Question 1

For purposes of a partial liquidation,the "not essentially equivalent to a dividend" test is applied at the shareholder level.

Answer 1

False
The distribution must result in a genuine contraction of the corporation's business.

Question 2

James and his son are the sole shareholders of Wren Corporation.During the current year,Wren distributes cash in redemption of all of James's stock.James continues to serve on the board of directors of Wren Corporation.The distribution is a complete termination redemption resulting in sale or exchange treatment for James.

Answer 2

False
The family attribution waiver cannot apply because serving on the board of directors is a prohibited interest.James is deemed to own the stock of his son,or 100% of the stock,after the redemption; thus,the distribution is a nonqualified redemption.

Question 3

For a stock redemption to qualify for sale or exchange treatment under § 303,it must satisfy the § 302 redemption provisions.

Answer 3

False
One of the principal advantages of a redemption to pay death taxes is that the § 302 provisions do not apply.

Question 4

In a redemption to pay death taxes,stock in corporations in which the decedent held a 20% or more interest is treated as stock in a single corporation for purposes of determining whether the value of stock owned by the decedent exceeds 35% of the value of the decedent's adjusted gross estate.

Question 5

In applying the stock attribution rules to a stock redemption,a shareholder is treated as owning the stock of her grandchildren.

Question 6

At a time when Blackbird Corporation had E & P of $600,000 and 1,000 shares of stock outstanding,the corporation distributed $200,000 to redeem 200 shares of its stock.The transaction qualified as a disproportionate redemption for the shareholder.Blackbird's E & P is reduced by $120,000 as a result of the distribution.

Question 7

All of the stock in Robin Corporation (E & P of $600,000)is held by three unrelated individuals as follows: Shontelle has 150 shares,Marta has 150 shares,and Diego owns 200 shares.Robin Corporation redeems 100 of Diego's shares (basis of $9,000)for $50,000.If Diego's stock is a capital asset that has been held for the requisite holding period,he has a long-term capital gain of $41,000.

Question 8

Betty's adjusted gross estate is $3 million.The death taxes and funeral and administration expenses of her estate total $500,000.Included in Betty's estate is stock in Heron Corporation,valued at $900,000 as of the date of death.Betty had acquired the stock six years ago at a cost of $175,000.If Heron Corporation redeems $500,000 of Heron stock from the estate,the transaction will qualify under § 303 as a redemption to pay death taxes and receive sale or exchange treatment.

Question 9

Hummingbird Corporation (E & P of $800,000)distributes land (fair market value of $250,000; basis of $300,000)to an estate in a redemption to pay death taxes under § 303.Hummingbird Corporation will recognize a loss of $50,000 as a result of the distribution.

Question 10

Bluebird Corporation's 500 shares outstanding are owned as follows: Lucinda,200 shares; Carl (Lucinda's father),100 shares; and Nancy (Lucinda's sister),200 shares.During the current year,Bluebird (E & P of $800,000)redeemed 80 shares of Lucinda's stock for $60,000.If Lucinda had acquired the 80 shares five years ago for $10,000,she will have a long-term capital gain of $50,000 from the redemption.

Question 11

A partial liquidation can result in sale or exchange treatment to a shareholder even if it results in a pro rata stock redemption.

Question 12

In determining whether the meaningful reduction test has been met (for purposes of a not essentially equivalent redemption),the most significant factor considered is a reduction in the shareholder's voting control.

Question 13

An advantage of using a stock redemption to acquire shares from the estate of a deceased shareholder is that the other shareholders would not be required to use their own funds for the acquisition.

Question 14

A corporate distribution treated as a stock redemption under state law will always result in sale or exchange treatment for the shareholder.

Question 15

In 2003,Floyd carried out a successful complete termination redemption of his stock in Gray Corporation.Floyd was able to qualify the transaction as a complete termination redemption only by use of the family attribution waiver.In 2008,Floyd inherits stock in Gray Corporation from his father.Floyd has acquired a prohibited interest within the 10-year postredemption period and,as a result,the 2003 redemption no longer qualifies as a complete termination redemption.

Question 16

Corporate shareholders receive more favorable tax treatment from a qualifying stock redemption than from a dividend distribution.

Question 17

A shareholder's basis in property received in a qualifying stock redemption is the property's fair market value but the basis of property received in a nonqualified stock redemption is same as the corporation's basis in the property.

Question 18

A corporate distribution to a noncorporate shareholder that is a return from the shareholder's investment receives more favorable tax treatment than a distribution that is a return of the shareholder's investment.

Question 19

In applying the stock attribution rules to a stock redemption,stock owned by a partner is deemed to be owned in full by the partnership.

Question 20

Reginald and Roland (Reginald's son)each own 50% of the stock of Robin Corporation.Reginald's stock interest is entirely redeemed by Robin Corporation.Two years later,Reginald loans Robin Corporation $250,000.As a result of the loan,the redemption of Reginald's stock cannot qualify for sale or exchange treatment.

Question 21

A sale of preferred stock that is § 306 stock typically results in ordinary income to the shareholder.

Question 22

Swan Corporation incurred $15,000 of accounting and legal fees in the redemption of stock from its shareholders.Swan can deduct the redemption expenditures as trade or business expenses under § 162.

Question 23

If a parent corporation makes a § 338 election,the subsidiary is treated as a new corporation as of the day following the qualified stock purchase date.

Question 24

The ordinary income resulting from a sale of § 306 stock is taxed at the shareholder's marginal tax rate.

Question 25

In a complete liquidation (not a parent-subsidiary liquidation),a shareholder typically recognizes dividend income equal to his or her share (i.e.,stock ownership percentage)of the liquidating corporation's E & P.

Question 26

Both the corporation and its shareholders may defer gain,to the point of collection,on a liquidating distribution of installment notes obtained by the corporation in the sale of its assets.

Question 27

As a general rule,a liquidating corporation recognizes gains but not losses on the distribution of property in complete liquidation.

Question 28

For purposes of the related-party loss limitation in the context of a liquidating distribution,a corporation and a shareholder are considered related if the shareholder owns (directly or indirectly)more than 50% in value of the corporation's outstanding stock.

Question 29

Legal dissolution under state law is required for a liquidation to be complete for tax purposes.

Question 30

Abel owns all the stock of both Beige Corporation and Brown Corporation.Both corporations have significant amounts of E & P.Abel sells some of his stock in Beige to Brown Corporation.Since the transaction was not a stock redemption by Beige,Abel has avoided the qualifying stock redemption provisions.

Question 31

One difference between the tax treatment accorded nonliquidating and liquidating distributions is with respect to the basis of property received in the distributions.In a nonliquidating distribution (e.g.,qualifying stock redemption),the shareholder takes a basis in the property equal to the corporation's basis in the property,while the basis of property acquired in a liquidation is its fair market value on the date of the distribution.

Question 32

Gains and losses are recognized to a subsidiary corporation if the parent corporation makes the § 338 election.

Question 33

Section 332 cannot apply to a parent-subsidiary liquidation if the subsidiary corporation is insolvent on the date of the liquidation.

Question 34

Brown Corporation purchased 90% of the stock of Green Corporation five years ago for $800,000.In the current year,Brown Corporation liquidates Green Corporation and acquires assets with a basis to Green Corporation of $900,000 (fair market value of $1.2 million).Brown Corporation will have a basis in the assets of $900,000,the same as Green's basis in the assets.

Question 35

For purposes of the § 338 election,a corporation must acquire,in a taxable transaction,at least 80% of the stock (voting power and value)of another corporation within an 12-month period.

Question 36

A redemption of § 306 stock generates dividend income to the shareholder and reduces the corporation's E & P.

Question 37

Grace owns 100% of Red Corporation and 100% of White Corporation.Both corporations have significant amounts of E & P.Grace sells 20 shares of Red Corporation stock (basis of $5,000)to White Corporation for $50,000.Grace has dividend income of $50,000 on the transaction.

Question 38

In a corporate liquidation,the built-in loss limitation can apply to sales of property in addition to liquidating distributions of property.

Question 39

Gains and losses are recognized by a subsidiary corporation on liquidating distributions to a minority shareholder in a § 332 liquidation.

Question 40

A subsidiary is liquidated pursuant to § 332.The parent has held 100% of the stock in the subsidiary for the past ten years.The subsidiary has a business credit carryover of $30,000 at the time of liquidation.The parent acquires the business credit carryover.

Question 41

With respect to a redemption that is a partial liquidation,which of the following statements is true?

A)Proceeds from the sale of marketable securities (held for investment) distributed to shareholders in exchange for part of their stock will pass the "not essentially equivalent to a dividend" test.
B)A stock redemption pursuant to a partial liquidation cannot be pro rata with respect to the shareholders.
C)The complete termination of an active business test requires that the distributing corporation actively conducted two or more trades or businesses for at least seven years.
D)The genuine contraction of business requirement is a subjective test that taxpayers cannot rely upon with certainty.
E)None of the above.

Question 42

Flamingo Corporation (E & P of $700,000)has 1,000 shares of stock outstanding.Jaime owns 400 shares,Lupe (Jaime's daughter)owns 400 shares,and the remaining 200 shares are owned by unrelated individuals.In an effort to raise funds for another investment,Jaime convinces Flamingo to redeem all of his shares for $380,000.Jaime acquired the stock seven years ago for $60,000.After the redemption,Jaime continued to serve as Flamingo's controller but Gabriella assumed his role as a member of the corporation's board of directors.As a result of the transaction,Jaime must recognize:

A)$380,000 dividend income.
B)$380,000 long-term capital gain.
C)$320,000 dividend income.
D)$320,000 long-term capital gain.
E)None of the above.

Question 43

Meadowlark Corporation has 1,000 shares of stock outstanding.Harvey owns 400 shares; Gabriella (Harvey's cousin)owns 400 shares; and Black Partnership owns 200 shares.Harvey is a 50% partner of Black Partnership.In applying the § 318 attribution rules:

A)Harvey owns 900 shares.
B)Harvey owns 500 shares.
C)Black Partnership owns 300 shares.
D)Gabriella owns 800 shares.
E)None of the above.

Question 44

Orange Corporation distributes property worth $200,000,basis of $140,000,to a shareholder in a distribution that is a qualifying stock redemption.The property is subject to a liability of $90,000,which the shareholder assumes.The basis of the property to the shareholder is:

A)$50,000.
B)$110,000.
C)$140,000.
D)$200,000.
E)None of the above.

Question 45

Blackbird Corporation owns 400 shares in Hawk Corporation.Luisa owns 600 shares in Hawk Corporation and 800 shares in Blackbird Corporation.The 800 shares represent an 80% interest in Blackbird.In applying the § 318 attribution rules:

A)Blackbird owns, directly and indirectly, 880 shares in Hawk.
B)Luisa owns, directly and indirectly, 600 shares in Hawk.
C)Blackbird owns, directly and indirectly, 1,000 shares in Hawk.
D)Luisa owns, directly and indirectly, 1,000 shares in Hawk.
E)None of the above.

Question 46

Kingbird Corporation (E & P $400,000)has 2,000 shares of stock outstanding.That stock is held by Amata (1,200 shares)and Esteban (800 shares),who are unrelated individuals.Kingbird redeems 500 of Amata's shares for $250 per share.Amata paid $70 per share for her Kingbird stock nine years ago.Which of the following statements is correct with respect to the stock redemption?

A)Amata has a long-term capital gain of $90,000.
B)Amata has dividend income of $125,000.
C)Kingbird reduces its E & P by $125,000.
D)Amata's basis in her remaining 700 shares is $84,000.
E)None of the above.

Question 47

Currently,Brown Corporation (E & P of $800,000)has 1,000 shares of common stock outstanding.Pat owns 200 shares.His wife,Abby,owns 200 shares,his daughter,Kate,owns 200 shares,and his father,Harold,owns 400 shares.Two years ago,Pat contributed $25,000 to Brown Corporation in exchange for 100 newly issued shares of nonvoting preferred stock.In the current year,Brown Corporation redeems Pat's preferred stock for $40,000,its fair market value.With respect to the distribution in redemption of the preferred stock:

A)Pat has a long-term capital gain of $15,000.
B)Pat has a long-term capital gain of $40,000.
C)Pat has dividend income of $15,000.
D)Pat has dividend income of $40,000.
E)None of the above.

Question 48

Hazel,Emily,and Frank,unrelated individuals,own all of the stock in Wren Corporation (E & P of $900,000)as follows: Hazel,100 shares; Emily,100 shares; and Frank,400 shares.Wren redeems 150 of Frank's shares (basis of $60,000)for $150,000.With respect to the distribution in redemption of the stock:

A)Frank has dividend income of $90,000.
B)Frank has a capital gain of $90,000.
C)Frank has dividend income of $150,000.
D)Frank has a capital gain of $150,000.
E)None of the above.

Question 49

Which of the following is a correct statement regarding a redemption to pay death taxes under § 303?

A)An estate recognizes gain on the redemption equal to the excess of the distribution proceeds over the decedent's basis in the stock.
B)The value of the stock in the decedent's gross estate must exceed 40% of the value of the adjusted gross estate.
C)A corporation recognizes gains but not losses on the distribution of property in the redemption.
D)The redemption must satisfy one of the § 302 qualifying stock redemption provisions.
E)None of the above.

Question 50

Five years ago,Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 1,000 shares of Blue Corporation in a transaction that qualified under § 351.The assets had a tax basis to her of $400,000 and a fair market value of $550,000 on the date of the transfer.In the current year,Blue Corporation (E & P of $1 million)redeems 100 shares from Eleanor for $290,000 in a transaction that does not qualify for sale or exchange treatment.With respect to the redemption,Eleanor will have a:

A)$250,000 dividend.
B)$290,000 dividend.
C)$250,000 capital gain.
D)$290,000 capital gain.
E)None of the above.

Question 51

Cardinal Corporation (E & P of $700,000)has 1,000 shares of stock outstanding.Lupita owns 300 shares of Cardinal stock,Berta (Lupita's sister)owns 500 shares,and April (Lupita's daughter)owns 200 shares.The corporation redeems 200 shares of Lupita's stock for $100,000.Lupita paid $100 a share for the stock five years ago.With respect to the redemption:

A)Lupita has a long-term capital gain of $80,000.
B)Lupita has a long-term capital gain of $100,000.
C)Lupita has dividend income of $100,000.
D)Lupita has dividend income of $80,000.
E)None of the above.

Question 52

The adjusted gross estate of Debra,decedent,is $5 million.Debra's estate will incur death taxes and funeral and administration expenses of $800,000.Debra's gross estate includes stock in Silver Corporation (fair market value of $2 million,basis to Debra of $900,000).Debra owned 90% of the stock in Silver Corporation.Silver Corporation redeems all of the estate's stock in the corporation for $2 million.Silver Corporation has E & P of $4 million.Debra's will names her daughter,Dena,who owns the remaining 10% interest in Silver Corporation,as her sole heir.With respect to this redemption,Debra's estate has the following income:

A)$0.
B)$1.1 million long-term capital gain.
C)$1.2 million dividend.
D)$2 million dividend.
E)None of the above.

Question 53

The gross estate of Katheryn,decedent,includes stock in Yellow Corporation and Violet Corporation valued at $500,000 and $600,000,respectively.Katheryn's adjusted gross estate is $3 million.She owned 22% of the Yellow stock and 27% of the Violet stock.Immediate members of Katheryn's family own the remaining shares of both Yellow and Violet.Those individuals are also the sole beneficiaries of Katheryn's estate.Death taxes and funeral and administration expenses for Katheryn's estate are $500,000.Katheryn had a basis of $230,000 in the Yellow stock and $310,000 in the Violet stock.Yellow Corporation (E & P of $800,000)distributed land worth $500,000 (basis of $420,000)to Katheryn's estate in redemption of all of the Yellow stock.Which of the following is a correct statement regarding the tax consequences of this redemption?

A)The estate recognizes dividend income of $270,000 on the redemption.
B)The estate recognizes a gain of $270,000 on the redemption.
C)The estate recognizes dividend income of $500,000 on the redemption.
D)Yellow Corporation recognizes a $80,000 gain on the distribution of the land.
E)None of the above.

Question 54

Keshia owns 500 shares in Parakeet Corporation.Keshia has a 40% beneficiary interest in her deceased grandmother's estate.The estate owns 600 shares in Parakeet Corporation.None of the other beneficiaries own stock in Parakeet.In applying the § 318 attribution rules:

A)The estate owns 800 shares.
B)Keshia owns 1,100 shares.
C)Keshia owns 500 shares.
D)The estate owns 1,100 shares.
E)None of the above.

Question 55

If a parent corporation makes a § 338 election,the subsidiary corporation must be liquidated.

Question 56

Which of the following corporate distributions would qualify as a partial liquidation?

A)A distribution to an individual shareholder of excess inventory by a clothing retailer who has been in the business for seven years. The corporation continues to operate a car wash business it has owned for six years.
B)A distribution to an individual shareholder of stock held for investment for more than five years. The corporation continues to operate three businesses it has owned for more than five years.
C)A distribution to an individual shareholder of the assets of a business owned and operated by the corporation for the last six years. The distribution was pursuant to a pro rata redemption of stock from the shareholders. The corporation continues to operate another business it has owned for the last ten years.
D)A distribution to a corporate shareholder of the proceeds from the sale of the assets of a business owed and operated for the last eight years. The (distributing) corporation continues to operate a business it has owned for the last seven years.
E)None of the above.

Question 57

Five years ago,Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 1,000 shares of Blue Corporation in a transaction that qualified under § 351.The assets had a tax basis to her of $400,000 and a fair market value of $550,000 on the date of the transfer.In the current year,Blue Corporation (E & P of $1 million)redeems 100 shares from Eleanor for $290,000 in a transaction that qualifies for sale or exchange treatment.With respect to the redemption,Eleanor will have a:

A)$250,000 dividend.
B)$290,000 dividend.
C)$250,000 capital gain.
D)$290,000 capital gain.
E)None of the above.

Question 58

Brenda owns 600 shares of Eagle Corporation stock at a time when Eagle has 1,000 shares of stock outstanding.The remaining shareholders are unrelated to Brenda.What is the minimum number of shares Eagle must redeem from Brenda so that the transaction will qualify as a disproportionate redemption?

A)121 shares.
B)231 shares.
C)301 shares.
D)501 shares.
E)None of the above.

Question 59

Carol,Bonnie,and Ann,sisters,own 400 shares,400 shares,and 200 shares,respectively,in Teal Corporation (E & P of $800,000).Teal Corporation redeems all of Ann's stock for $120,000.Ann paid $50 a share for the stock five years ago.Ann continued to serve as president of Teal after the redemption.With respect to the redemption:

A)Ann has a long-term capital gain of $120,000.
B)Ann has a long-term capital gain of $110,000.
C)Ann has dividend income of $120,000.
D)Ann has dividend income of $110,000.
E)None of the above.

Question 60

The adjusted gross estate of Keith,decedent,is $4 million.Included in the gross estate is stock in Gold Corporation (E & P of $900,000),a closely held corporation,valued at $2 million as of the date of Keith's death.Keith had acquired the stock twelve years ago at a cost of $280,000.Death taxes and funeral and administration expenses for Keith's estate are $500,000.Gold Corporation redeems one-fourth of the stock from Keith's estate in a § 303 redemption to pay death taxes using property with a fair market value of $500,000 and an adjusted basis to Gold Corporation of $350,000.

A)Gold Corporation will recognize a $150,000 gain on the distribution of the property to Keith's estate.
B)The estate will have a basis of $350,000 in the property received from Gold Corporation in redemption of the estate's stock.
C)Gold Corporation will not reduce its E & P as a result of the distribution of the property to Keith's estate.
D)The estate will recognize a $430,000 long-term capital gain on the redemption.
E)None of the above.

Question 61

Magenta Corporation acquired land in a § 351 exchange in 2007.The land had a basis of $450,000 and a fair market value of $520,000 on the date of the transfer.Magenta Corporation has two equal shareholders,Mark and Megan,who are father and daughter.Magenta Corporation adopts a plan of liquidation in the current year.On this date,the land has decreased in value to $390,000.Magenta Corporation sells the land for $390,000 and distributes the proceeds pro rata to Mark and Megan.What amount of loss may Magenta Corporation recognize on the sale of the land?

A)$0.
B)$60,000.
C)$70,000.
D)$130,000.
E)None of the above.

Question 62

On April 12,2007,Crow Corporation acquired land in a transaction that qualified under § 351.The land had a basis of $350,000 to the contributing shareholder and a fair market value of $200,000.Assume that the shareholder also transferred equipment (basis of $30,000,fair market value of $180,000)in the same § 351 exchange.Crow Corporation adopted a plan of liquidation on October 3,2008.On December 4,2008,Crow Corporation distributes the land to Ali,a shareholder who owns 20% of the stock in Crow Corporation.Value of the land has declined to $130,000 on the date of the distribution to Ali.Crow Corporation acquired the land to use as security for a loan it had hoped to obtain from a local bank.In negotiating with the bank for a loan,the bank required the additional capital investment as a condition of its making a loan to Crow Corporation.How much loss can Crow Corporation recognize on the distribution of the land?

A)$0.
B)$70,000.
C)$150,000.
D)$220,000.
E)None of the above.

Question 63

In comparing a qualifying stock redemption with a complete liquidation,which of the following statements is incorrect?

A)Liquidations and qualifying stock redemptions parallel each other in terms of the effect that E & P has on the nature of the gain or loss recognized by the shareholder.
B)A corporation will recognize gain upon the distribution of appreciated property for both a qualifying stock redemption and a complete liquidation, but a corporation will recognize loss upon a distribution of depreciated property only for a complete liquidation.
C)Both a qualifying stock redemption and a distribution pursuant to a complete liquidation produce sale or exchange treatment to the shareholder.
D)The basis of property acquired is its fair market value on the date of distribution for both a qualifying stock redemption and a liquidation.
E)Section 267 disallows recognition of losses between related parties in a complete liquidation but not in a qualifying stock redemption.

Question 64

Skylark Corporation owns 100% of the outstanding stock of Quail Corporation,having purchased the stock 5 years ago for $310,000.Pursuant to a plan of liquidation adopted by Quail Corporation on March 4,2008,Quail distributes all its property on December 1,2008,to its shareholder.Quail Corporation had never been insolvent and had E & P of $420,000 on the date of liquidation.Pursuant to the liquidation,Quail distributed property worth $390,000 (basis $325,000)to Skylark Corporation.How much gain must the parties recognize in 2008 on the transfer of this property to Skylark Corporation?

A)$0 as to both Skylark Corporation and Quail Corporation.
B)$80,000 as to Skylark Corporation.
C)$65,000 as to Quail Corporation.
D)$15,000 as to Skylark Corporation.
E)None of the above.

Question 65

Yellow Corporation transfers land (basis of $120,000,fair market value of $260,000)to Joe,a shareholder,to carry out a qualified stock redemption.The land is distributed subject to a $150,000 liability.With respect to the redemption:

A)Yellow Corporation will not recognize a gain.
B)Yellow Corporation will recognize a gain of $30,000.
C)Yellow Corporation will recognize a gain of $110,000.
D)Yellow Corporation will recognize a gain of $140,000.
E)None of the above.

Question 66

Grace receives as a nontaxable stock dividend preferred stock with a § 306 taint of $200,000 to which she assigns a basis of $30,000.Assume the common stock upon which the preferred stock was issued has been held as an investment for four years.One month after the stock dividend and when it has a fair market value of $200,000,Grace contributes the preferred stock to a qualified charitable organization.With respect to the charitable contribution:

A)Grace has dividend income of $200,000.
B)Grace's charitable deduction (before the percentage of AGI limitation) is the fair market value of the stock, or $200,000.
C)Grace's charitable deduction is the fair market value of the stock less the § 306 taint, or $0.
D)Grace has dividend income of $30,000.
E)None of the above.

Question 67

The stock of Cardinal Corporation is held as follows: 85% by Blue Jay Corporation (basis of $800,000)and 15% by Samuel (basis of $60,000).Cardinal Corporation is liquidated on October 20,2008,pursuant to a plan adopted on January 9,2008.Pursuant to the liquidation,Cardinal Corporation distributed Asset A (basis of $550,000,fair market value of $850,000)to Blue Jay,and Asset B (basis of $200,000,fair market value of $150,000)to Samuel.No election is made under § 338.With respect to the liquidation of Cardinal:

A)Blue Jay recognizes a gain of $50,000.
B)Blue Jay has a basis in Asset A of $850,000.
C)Cardinal Corporation recognizes a loss of $50,000.
D)Samuel recognizes a gain of $90,000.
E)None of the above.

Question 68

Three sisters,Carol,Lori,and Nina,own the stock in White Corporation equally.The three sisters owned,as tenants in common,a tract of land (basis of $350,000,fair market value of $460,000)that they transferred to White Corporation four years ago as a contribution to capital.In the current year,White Corporation adopts a plan of liquidation and distributes the land,now worth $300,000,equally to Carol,Lori,and Nina as tenants in common.What amount of loss may White Corporation recognize on the distribution of the land?

A)$0.
B)$50,000.
C)$110,000.
D)$160,000.
E)None of the above.

Question 69

Which of the following is an incorrect statement regarding the tax consequences of a § 306 stock sale?

A)The shareholder generally recognizes capital gain equal to the fair market value of the preferred stock on the date of the stock dividend.
B)No loss is recognized on the sale.
C)Any ordinary income recognized by the shareholder qualifies for the 15% (or 0%) maximum tax rate that applies to dividend income.
D)The sale does not affect the issuing corporation's E & P.
E)None of the above.

Question 70

Corbin sold 100 shares of § 306 stock (basis of $4,000)in Owl Corporation to Linda (an unrelated individual)for $20,000.When the § 306 stock was issued to Corbin,the stock had a value of $20,000,and Owl's E & P was $500,000.At the time of the stock sale to Linda,Owl has E & P of $600,000,and Corbin has 600 shares of common stock (basis of $76,000)in Owl.With respect to the § 306 stock sale:

A)Corbin's basis in the common stock after the sale is $76,000.
B)Owl Corporation reduces its E & P by $20,000.
C)Corbin has a $16,000 capital gain.
D)Corbin's basis in the common stock after the sale is $80,000.
E)None of the above.

Question 71

Warbler Corporation distributes all of its property in a complete liquidation.Kena,a shareholder,receives $7,000 cash and land having a fair market value of $120,000.Warbler had purchased the land three years ago for $105,000.Kena has a $22,000 basis in her Warbler stock.What is Kena's basis in the land received in the liquidation of Warbler?

A)$0.
B)$105,000.
C)$120,000.
D)$127,000.
E)None of the above.

Question 72

Pursuant to a complete liquidation,Woodpecker Corporation distributes the following assets to its unrelated shareholders: land held as an investment (basis of $400,000,fair market value of $250,000),inventory (basis of $260,000,fair market value of $290,000),and marketable securities (basis of $100,000,fair market value of $160,000).What are the tax results to Woodpecker Corporation as a result of the liquidation? (Woodpecker Corporation has held the land for six years and the securities for two years.)

A)Woodpecker Corporation would recognize a gain of $90,000 and a loss of $150,000.
B)Woodpecker Corporation would recognize a gain of $90,000 and a loss of $0.
C)Woodpecker Corporation would recognize a gain of $60,000 and a loss of $0.
D)Woodpecker Corporation would recognize no gain or loss on the liquidation.
E)None of the above.

Question 73

The stock in Lark Corporation is owned equally by Olaf and his grandson Pete.In a liquidation of the corporation in the current year,Lark Corporation distributes land that it purchased in 2006 for $300,000 to Olaf.The property has a fair market value on the date of distribution of $260,000.One year later,Olaf sells the land for $240,000.What loss will Lark Corporation recognize with respect to the distribution of the land?

A)$20,000.
B)$40,000.
C)$60,000.
D)$260,000.
E)None of the above.

Question 74

Pursuant to a complete liquidation,Oriole Corporation distributes to its shareholders land with a basis of $600,000 and a fair market value of $750,000.The land is subject to a liability of $800,000.What is Oriole's recognized gain or loss on the distribution?

A)$50,000 gain.
B)$150,000 gain.
C)$200,000 gain.
D)$50,000 loss.
E)None of the above.

Question 75

After a plan of complete liquidation has been adopted,Condor Corporation sells its only asset,land (basis of $300,000),to Eduardo (an unrelated party)for $700,000.Under the terms of the sale,Condor Corporation receives cash of $200,000 and Eduardo's notes for the balance of $500,000.The notes are payable over the next five years ($100,000 per year)and carry an adequate interest rate.Immediately after the sale,Condor Corporation distributes the cash and notes to Maria,the sole shareholder of Condor Corporation.Maria has a basis of $105,000 in the Condor stock.The installment notes have a value equal to their face amount.If Maria wishes to defer as much gain as possible on the transaction,which of the following is correct?

A)Condor Corporation recognizes no gain or loss on the distribution of the installment notes.
B)Maria recognizes a gain of $95,000 in the year of liquidation.
C)Maria recognizes a gain of $170,000 in the year of liquidation.
D)Maria recognizes a gain of $595,000 in the year of liquidation.
E)None of the above.

Question 76

Canary Corporation has 1,000 shares of stock outstanding.It redeems in a qualifying stock redemption 300 shares for $350,000 at a time when it has paid-in capital of $100,000 and E & P of $1 million.What would be the charge to E & P as a result of the redemption?

A)$350,000.
B)$300,000.
C)$30,000.
D)$0.
E)None of the above.

Question 77

Pursuant to a qualifying stock redemption,Redbird Corporation (E & P of $500,000)transfers land held for investment purposes to Bob,a shareholder.On the date of the distribution,Redbird has a basis of $300,000 in the land and its fair market value is $260,000.With respect to the redemption:

A)Redbird Corporation will recognize an ordinary loss of $40,000.
B)Bob will have a $260,000 basis in the land.
C)Bob will have $300,000 of dividend income.
D)Redbird Corporation will recognize a capital loss of $40,000.
E)None of the above.

Question 78

Joe owns 100% of Green Corporation (E & P of $500,000)and 100% of Navy Corporation (E & P of $400,000).Joe sells 100 shares in Green (basis of $15,000)to Navy for $40,000,its fair market value.Joe purchased the stock in Green six years ago.Joe has:

A)A long-term capital gain of $40,000.
B)A long-term capital gain of $25,000.
C)Dividend income of $40,000.
D)Dividend income of $25,000.
E)None of the above.

Question 79

In March of the current year,Loon Corporation (a calendar year corporation)made a distribution in redemption of some of its shares.At that time,Loon incurred redemption-related expenditures totaling $50,000 (consisting of accounting fees of $20,000,legal fees of $25,000,and brokerage fees of $5,000).The distribution was a qualifying stock redemption.How much of the $50,000 is deductible in the current year?

A)$5,000.
B)$10,000.
C)$25,000.
D)$50,000.
E)None of the above.

Question 80

Formed in 1999,Purple Corporation has two equal shareholders,Joshua and Ellie,who are father and daughter.In 2007,the two shareholders transfer properties to Purple in a § 351 exchange.Joshua transferred undeveloped land (basis of $150,000,fair market value of $100,000)and securities (basis of $25,000,fair market value of $100,000),while Ellie transferred equipment (basis of $120,000,fair market value of $200,000).Purple Corporation adopts a plan of liquidation in 2008,sells all of its assets,and distributes the proceeds pro rata to Joshua and Ellie.The only loss realized upon disposition of the properties was with respect to the undeveloped land that had decreased in value to $50,000 and was sold for this amount.Purple never used the land for any business purpose during the time it was owned by the corporation.What amount of loss can Purple Corporation recognize on the sale of the undeveloped land?

A)$0.
B)$25,000.
C)$50,000.
D)$100,000.
E)None of the above.