Question 1

A corporation is owned 70% by Jones and 30% by Smith.Jones owns 70 shares with a cost of $100 each.Smith owns 30 shares with a cost of $100 per share.Smith and Jones are not related.The company redeems Smith's 30 shares at a redemption price of $400 per share.No stock is redeemed from Jones.This is not a redemption to pay death taxes,and it is not a partial liquidation.Smith will recognize

Accepted Answer

Since the redemption is not a dividend and not a partial liquidation, it is treated as a sale of stock. Smith's cost basis in the shares is $100 per share, but they are redeemed for $400 per share, resulting in a capital gain of $300 per share. The total capital gain for Smith is $9,000 (30 shares x $300).

Question 2

Danielle transfers land with a $100,000 FMV (basis $95,000)and $85,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $15,000.The corporation qualifies as a 351 transfer.The corporation assumes the $85,000 mortgage.What is the adjusted basis of the property to the corporation?

Accepted Answer

In a 351 transfer, the transfer of appreciated property to a corporation is not recognized if the transfer is solely in exchange for stock, and the transferor controls the corporation after the transfer. In this case, Danielle transfers land with a FMV of $100,000 (basis $95,000) and $85,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $15,000. Since the transfer meets the requirements of Section 351, it is not a taxable event for Danielle. The corporation's basis in the property received is the same as Danielle's basis in the property, which is $95,000. Since the corporation assumes the $85,000 mortgage, the adjusted basis of the property to the corporation is $95,000 + $85,000 = $180,000. Therefore, the answer is C.

Question 3

Ron transfers assets with a $100,000 FMV (basis $60,000)and $70,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $30,000.The corporation assumes the $70,000 mortgage.The transfer qualifies under Sec.351.What is the adjusted basis of the stock received?

Accepted Answer

The answer of Ron transfers assets with a $100,000 FMV...

Question 4

Blue Corporation distributes land and building having a $70,000 adjusted basis and a $200,000 FMV to its sole shareholder,Marina.Blue has current and accumulated E & P exceeding $100,000.The property is subject to a $120,000 mortgage,which Marina assumes.What is the amount of the taxable dividend received by Marina?

Accepted Answer

The FMV of the distributed property is $200,000, and the mortgage assumed by Marina is $120,000. Therefore, the amount of the distribution is $80,000 ($200,000 - $120,000). Since Blue Corporation has current and accumulated E & P exceeding $100,000, the entire distribution is treated as a dividend to Marina. The adjusted basis of the property is irrelevant for this calculation. Thus, the amount of the taxable dividend received by Marina is $80,000.

Question 5

Bob transfers assets with a $100,000 FMV (basis $60,000)and $70,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $30,000.The corporation assumes the $70,000 mortgage.The transfer qualifies under Sec.351.What is Bob's gain recognized on the transfer?

Accepted Answer

Since the transfer qualifies under Sec. 351, Bob's basis in the stock equals the basis of the transferred assets (i.e., $60,000). Since the FMV of the stock received is only $30,000, Bob has a recognized gain of $30,000 ($60,000 - $30,000).

Question 6

Tara transfers land with a $690,000 adjusted basis and a $700,000 FMV to a corporation in a Sec.351 transfer.Immediately after the transfer,Tara owns 100% of the corporation-stock with a FMV of $615,000.In addition,$85,000 of liabilities are assumed by the corporation with respect to the transfer.No other property is transferred.Tara's recognized gain on the transfer is

Accepted Answer

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Question 7

A corporation distributes land worth $200,000 to its sole shareholder.The corporation had purchased the land several years ago for $120,000.The corporation has over $1 million of E&P.How much income will the corporation and the shareholder recognize?

Accepted Answer

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Question 8

John transfers assets with a $200,000 FMV (basis $160,000)and $170,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $130,000.The corporation assumes the $170,000 mortgage.The transfer qualifies under Sec.351.What is the corporation's basis in the property?

Accepted Answer

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Question 9

A calendar-year corporation has a $15,000 current E&P deficit and a $40,000 positive accumulated E&P balance.Also assume that shareholders of the corporation have a total basis in outstanding shares of $30,000.A $75,000 distribution is made to the shareholders on the last day of the year.The tax results to the shareholders will be

Accepted Answer

The answer of A calendar-year corporation has a $15,000 current...

Question 10

Sun Corporation makes a liquidating distribution of land with a $90,000 adjusted basis and a $100,000 FMV to shareholder Tim,who surrenders his Sun stock to the corporation.Lindsey,another shareholder,received $100,000 cash for her shares.Tim's adjusted basis in the Sun stock is $70,000.Lindsey's adjusted basis in her stock if $110,000.What is the amount of gains and or losses recognized by Tim and Lindsey as a result of these transactions?

Accepted Answer

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Question 11

Dixie Corporation distributes $31,000 to its sole shareholder,Sally.At the time of the distribution,Dixie's E & P is $25,000 and Sally's basis in her Dixie stock is $10,000.Sally's basis in her Dixie stock after the distribution is

Accepted Answer

The distribution to Sally is first applied against Dixie's E&P, which is $25,000, reducing the distribution to $6,000 ($31,000 - $25,000) that is considered a return of capital. This reduces Sally's basis in her Dixie stock by the same amount, from $10,000 to $4,000 ($10,000 - $6,000).

Question 12

Greg Corporation,an accrual method taxpayer,had accumulated earnings and profits of $300,000 as of December 31,last year.For its current tax year,Greg's books and records reflect the following:  Based on the above,what is the amount of Greg Corporation's current earnings and profits for this year?

Accepted Answer

The calculation of Greg Corporation's current earnings and profits for this year is as follows:

Beginning balance of accumulated earnings and profits = $300,000

Plus: Current year's taxable income = $120,000

Minus: Non-deductible expenses (meals and entertainment) = $2,500

Minus: Capital loss (which cannot reduce earnings and profits) = $1,000

Minus: Dividend paid = $293,000

Total = $123,500

Since earnings and profits are calculated to the nearest $500, the final amount is rounded up to $124,500, which is option C.

Question 13

Daniel transfers land with a $92,000 adjusted basis and a $100,000 FMV to a corporation in a Sec.351 transfer.Immediately after the transfer,Daniel owns 100% of the corporation-stock with a FMV of $15,000.In addition,$85,000 of liabilities are assumed by the corporation with respect to the transfer.No other property is transferred.Daniel's basis in the stock is

Accepted Answer

In a Sec. 351 transfer, no gain or loss is recognized by the transferor when property is transferred to a corporation solely in exchange for stock. Therefore, Daniel's basis in the stock received is equal to his basis in the property transferred, which is $92,000. However, this basis is reduced by the amount of liabilities assumed by the corporation, which is $85,000. Thus, Daniel's basis in the stock is $7,000 ($92,000 - $85,000). Choice B is the correct answer.

Question 14

Individuals Terry and Jim form TJ Corporation.Terry transfers cash of $930,000 in exchange for 50% of the stock of the TJ Corporation worth $900,000 and a $30,000 note.Jim transfers equipment with a $890,000 adjusted basis and a $930,000 FMV for 50% of the stock worth $900,000 and a note of the TJ Corporation valued at $30,000.The basis of the equipment to TJ Corporation is

Accepted Answer

The basis of the equipment transferred by Jim will be its FMV, which is $930,000. However, since he transferred it in exchange for 50% of the stock worth $900,000 and a $30,000 note, the total value of his consideration is $930,000. This means that the basis of his stock and note is also $930,000. Therefore, the total basis of TJ Corporation's assets will be $930,000 (cash) + $930,000 (basis of Jim's stock and note) = $1,860,000. Since Terry and Jim each own 50% of the stock, their respective basis will be half of the total basis, which is $920,000. Thus, the basis of the equipment to TJ Corporation is $920,000.

Question 15

A corporation is owned 70% by Jones and 30% by Smith.Jones owns 70 shares with a cost of $100 each.Smith owns 30 shares with a cost of $100 per share.The company redeems 20 shares from Jones at a redemption price of $400 per share.No stock is redeemed from Smith.This is not a redemption to pay death taxes,and it is not a partial liquidation.What is the tax impact on Jones?

Accepted Answer

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Question 16

Total Corporation has earned $75,000 current E&P and has an accumulated E&P deficit from prior year of $25,000.The corporation pays a $100,000 distribution to shareholders.Shareholders of the corporation have a total stock basis of $40,000.The tax results of the distributions to the shareholders will be

Accepted Answer

A)A distribution is deemed made first out of current E&P,to the extent of current E&P even when there is an accumulated deficit.After current E&P is exhausted,the distribution will come from stock basis if there is an accumulated E&P deficit.

Question 17

A corporation distributes land with a FMV of $85,000 (basis $50,000).The land has a mortgage of $95,000 assumed by the shareholder.Gain to the corporation is

Accepted Answer

The answer of A corporation distributes land with a FMV...

Question 18

A liquidating corporation

Accepted Answer

When a corporation is liquidating, it distributes its assets to its shareholders. The corporation recognizes gains and losses on the distribution of the property. The gain or loss is calculated by comparing the fair market value of the property distributed with its adjusted basis. If the fair market value is higher than the adjusted basis, then the corporation recognizes a gain. If the fair market value is lower than the adjusted basis, then the corporation recognizes a loss. Therefore, choice A is the best answer.

Question 19

Corkie Corporation distributes $80,000 cash along with land having a $60,000 adjusted basis and a $40,000 FMV to its shareholder Josh.What are the tax consequences to Corkie Corporation?

Accepted Answer

The distribution of $80,000 cash along with land having a $60,000 adjusted basis and a $40,000 FMV will result in a loss realized of $20,000 ($60,000 - $40,000). However, this loss is not recognized for tax purposes since the property distributed is not considered a capital asset in the hands of the distributing corporation. Therefore, the correct answer is option B, a loss realized but not recognized.

Question 20

A calendar-year corporation has a $75,000 current E&P amount,and a $25,000 positive accumulated E&P balance at the beginning of the year.Shareholders of the corporation have a total basis in outstanding shares of $40,000.The corporation pays a $120,000 distribution to the shareholders.The tax results to the shareholders will be

Accepted Answer

The answer of A calendar-year corporation has a $75,000 current...

Quiz 16: Corporations

Bob transfers assets with a $100,000 FMV (basis $60,000) and $70,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $30,000.The corporation assumes the $70,000 mortgage.The transfer qualifies under Sec.351.What is Bob's gain recognized on the transfer?

A corporation distributes land worth $200,000 to its sole shareholder.The corporation had purchased the land several years ago for $120,000.The corporation has over $1 million of E&P.How much income will the corporation and the shareholder recognize?

Dixie Corporation distributes $31,000 to its sole shareholder,Sally.At the time of the distribution,Dixie's E & P is $25,000 and Sally's basis in her Dixie stock is $10,000.Sally's basis in her Dixie stock after the distribution is

Greg Corporation,an accrual method taxpayer,had accumulated earnings and profits of $300,000 as of December 31,last year.For its current tax year,Greg's books and records reflect the following: Based on the above,what is the amount of Greg Corporation's current earnings and profits for this year?

A corporation distributes land with a FMV of $85,000 (basis $50,000) .The land has a mortgage of $95,000 assumed by the shareholder.Gain to the corporation is

A liquidating corporation

Corkie Corporation distributes $80,000 cash along with land having a $60,000 adjusted basis and a $40,000 FMV to its shareholder Josh.What are the tax consequences to Corkie Corporation?