Question 1

Han transferred land to his corporation in a §351 transaction. Han had held the land for two years prior to the transfer. The corporation will tack Han's holding period for the land.

Accepted Answer

In a §351 transaction, the holding period of the property transferred to the corporation includes the transferor's holding period, allowing the corporation to "tack" the transferor's holding period onto its own.

Question 2

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

Accepted Answer

True

Question 3

A §338 transaction is a stock acquisition treated as an asset acquisition based on an election made by the acquirer.

Accepted Answer

A §338 election allows a stock acquisition to be treated as an asset acquisition for tax purposes, enabling the acquirer to step up the basis of the target's assets.

Question 4

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

Accepted Answer

In a tax-deferred transaction, the taxpayer's tax basis in the property received is often determined by the carryover basis from the property exchanged, not merely its cost. This means the basis in the new property is based on the basis of the old property, adjusted for any additional considerations paid or received, rather than starting anew with the cost of the acquired property.

Question 5

Mandel transferred property to his new corporation in a §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.

Accepted Answer

In a §351 transaction, the corporation takes a carryover basis in the property transferred to it, which means the corporation's basis in the land would be Mandel's basis of $250,000, not the fair market value of $200,000. This preserves the "built-in loss" in the hands of the corporation.

Question 6

The definition of property as it relates to a §351 transaction includes money.

Accepted Answer

Section 351 of the Internal Revenue Code defines property as any money, securities, or property other than stock. Therefore, money is included in the definition of property for §351 transactions.

Question 7

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

Accepted Answer

The answer of Gain and loss realized in a §351...

Question 8

Generally, before gain or loss is realized for tax purposes, the taxpayer must engage in a transaction.

Accepted Answer

Generally, the realization of gains or losses for tax purposes requires a transaction or disposition of property.

Question 9

Type A reorganizations involve the transfer of assets of the target corporation via a merger or consolidation.

Accepted Answer

Type A reorganizations involve the transfer of assets of the target corporation via a merger or consolidation.

Question 10

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.

Accepted Answer

The answer of Control as it relates to a §351...

Question 11

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.

Accepted Answer

The answer of A stock-for-stock Type B reorganization will be...

Question 12

Maria defers $100 of gain realized in a §351 transaction. The stock she receives in the exchange has a fair market value of $500. Maria's tax basis in the stock will be $400.

Accepted Answer

In a §351 transaction, if a taxpayer defers gain, the tax basis of the stock received is equal to the tax basis of the property transferred minus the amount of the deferred gain. Therefore, Maria's tax basis in the stock will be $400 ($500 - $100).

Question 13

Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received by the shareholders of the target corporation in the transaction.

Accepted Answer

Continuity of interest refers to the shareholders' continuing ownership stake in the newly reorganized company, as measured by the aggregate equity received in the transaction. This is important for determining the tax treatment of the transaction, particularly in cases where the reorganization involves the exchange of stock or other securities.

Question 14

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.

Accepted Answer

The tax basis that shareholders in the target corporation receive in the stock from the acquirer is generally not the stock's fair market value but rather carries over from their original basis in the target corporation's stock, unless the transaction is structured to qualify as a taxable transaction where different rules might apply.

Question 15

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

Accepted Answer

The answer of Gain or loss is always recognized when...

Question 16

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a §351 transaction. In all cases, the assumed liability will be treated as boot received by Jane.

Accepted Answer

In a §351 transaction, the assumption of liability by the corporation is generally not treated as boot received by the transferor unless the liability exceeds the basis of the assets transferred. The treatment depends on the purpose of the liability assumption and the overall context of the transaction.

Question 17

A taxpayer who receives nonvoting preferred stock is not eligible for deferral in a §351 exchange.

Accepted Answer

In a §351 exchange, the receipt of nonvoting preferred stock can still qualify for deferral as long as the other requirements of §351 are met, such as control of the corporation immediately after the exchange.

Question 18

To meet the control test under §351, taxpayers transferring property to a corporation must in aggregate own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock after the transfer.

Accepted Answer

The control test under §351 requires that the taxpayers transferring property to a corporation must in aggregate own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock after the transfer to meet the requirements.

Question 19

Tax considerations are always the primary reason for structuring an acquisition.

Accepted Answer

While tax considerations are important, they are not always the primary reason for structuring an acquisition. Other factors such as strategic fit, financial benefits, and operational synergies often play a more significant role.

Question 20

The requirements for tax deferral in a forward triangular merger and a reverse triangular merger are the same.

Accepted Answer

In a forward triangular merger, the acquiring corporation's parent must use its voting stock to acquire control of the target corporation, while in a reverse triangular merger, the subsidiary of the acquiring corporation merges into the target, with the target surviving, and similar stock considerations apply. The specific requirements for tax deferral, including the type and amount of consideration that can be used, differ between the two types of mergers.

Quiz 8: Corporate Formation, Reorganization, and Liquidation

Han transferred land to his corporation in a §351 transaction. Han had held the land for two years prior to the transfer. The corporation will tack Han's holding period for the land.

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

A §338 transaction is a stock acquisition treated as an asset acquisition based on an election made by the acquirer.

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

The definition of property as it relates to a §351 transaction includes money.

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

Generally, before gain or loss is realized for tax purposes, the taxpayer must engage in a transaction.

Type A reorganizations involve the transfer of assets of the target corporation via a merger or consolidation.

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.

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.

Maria defers $100 of gain realized in a §351 transaction. The stock she receives in the exchange has a fair market value of $500. Maria's tax basis in the stock will be $400.

Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received by the shareholders of the target corporation in the transaction.

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.

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

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a §351 transaction. In all cases, the assumed liability will be treated as boot received by Jane.

A taxpayer who receives nonvoting preferred stock is not eligible for deferral in a §351 exchange.

To meet the control test under §351, taxpayers transferring property to a corporation must in aggregate own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock after the transfer.

Tax considerations are always the primary reason for structuring an acquisition.

The requirements for tax deferral in a forward triangular merger and a reverse triangular merger are the same.