Question 1

Control as it relates to a section 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

False

Question 2

Mandel transferred property to his new corporation in a section 351 transaction. One of the properties transferred was land with a fair market value of $200,000 and a tax basis of $250,000. 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

False

Question 3

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

Accepted Answer

In a section 351 transaction, where property is transferred to a corporation in exchange for stock, any boot received will have a tax basis equal to its fair market value. This means that if the property has appreciated in value, the taxpayer will have a higher tax basis in the boot than they did in the property, which can result in a lower capital gain if the boot is later sold.

Question 4

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

Accepted Answer

Only gain realized is recognized when boot is received in a section 351 transaction.

Question 5

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a section 351 transaction. The assumed liability will be treated as boot received by Jane.

Accepted Answer

The answer of M Corporation assumes a $200 liability attached...

Question 6

Maria defers $100 of gain realized in a section 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

When deferring gain in a section 351 transaction, the tax basis in the stock received is equal to the tax basis in the property transferred, minus the amount of the deferred gain. In this case, Maria's tax basis in the stock would be $500 (the fair market value of the stock received) minus $100 (the deferred gain), which equals $400.

Question 7

To meet the control test under section 351, a taxpayer transferring property to a corporation must 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 answer of To meet the control test under section...

Question 8

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 9

A taxpayer's tax basis in property always begins with its cost to the taxpayer.

Accepted Answer

The answer of A taxpayer's tax basis in property always...

Question 10

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 is determined by the aggregate equity received by the target corporation's shareholders after the reorganization, so this statement is true.

Question 11

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

Accepted Answer

Property, as defined in a section 351 transaction, includes cash and other assets that have value, not just physical property such as real estate or equipment. Therefore, the definition of property encompasses money.

Question 12

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 13

Tax considerations always are the primary reason for how an acquisition is structured.

Accepted Answer

Although tax considerations can play a significant role in how an acquisition is structured, other factors such as legal, financial, operational, and strategic considerations also come into play. It is important for companies to consider a range of factors when determining the most effective way to structure an acquisition.

Question 14

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.

Question 15

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

Accepted Answer

In order for gain or loss to be realized for tax purposes, there must be a transaction, such as selling an asset or exchanging it for another asset.

Question 16

Han transferred land to his corporation in a section 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

According to Section 1223(2) of the Internal Revenue Code, a corporation can tack the holding period of the property transferred to it by a shareholder in a Section 351 transaction. Therefore, the corporation will be treated as having held the property for the same period of time as Han did.

Question 17

A taxpayer must receive voting common stock to be eligible for deferral in a section 351 exchange.

Accepted Answer

A taxpayer can defer recognition of gain in a section 351 exchange even if they receive nonvoting common stock or preferred stock, as long as the stock received is considered to be substantially equivalent in value to the property transferred.

Question 18

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

Accepted Answer

A section 338 transaction allows the acquiring company to step up the tax basis of the acquired company's assets to fair market value, which can result in significant tax savings. This election is made by the acquirer and allows the transaction to be treated as an asset acquisition for tax purposes.

Question 19

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

Accepted Answer

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

Question 20

A Type A reorganization deals with the transfer of assets by the target corporation in a merger.

Accepted Answer

A Type A reorganization involves the transfer of all or substantially all of the assets of the target corporation to the acquiring corporation in a merger where the target corporation ceases its existence.

Quiz 19: Corporate Formation, Reorganization, and Liquidation