Deck 6: Corporations: Redemptions and Liquidations

Question 1

The stock in Star Corporation is held equally by two brothers.One year before its liquidation, the shareholders transfer property (basis of $650,000, fair market value of $400,000) to Star Corporation in return for stock.In a current year liquidation, Star Corporation transfers the property (now worth $350,000) pro rata to the brothers.What amount of loss will Star Corporation recognize on the distribution?

A)$0.
B)$250,000.
C)$300,000.
D)$50,000.
E)None of the above.

Answer 1

A

Question 2

Katie owns 2,700 shares of Keplar Corporation stock at a time when Keplar has 5,000 shares of stock outstanding.The remaining shareholders are unrelated to Katie.What is the minimum number of shares Keplar must redeem from Katie so that the transaction will qualify as a disproportionate redemption?

A)202 shares.
B)402 shares.
C)952 shares.
D)1,748 shares.
E)None of the above.

Answer 2

C

Question 3

Universe, the parent corporation, has a basis of $440,000 in the stock of Solar Corporation, a subsidiary in which it owns 90% of all classes of stock.Universe purchased the stock in Solar Corporation 10 years ago.In the current year, Universe Corporation liquidates Solar Corporation and acquires assets worth $500,000 with a tax basis to Solar Corporation of $380,000.What basis will Universe Corporation have in the assets acquired from Solar Corporation?

A)$0.
B)$380,000.
C)$440,000.
D)$500,000.
E)None of the above.

Answer 3

B

Question 4

Which of the following would not be classified as § 306 stock?

A)§ 306 stock received as a gift.
B)Common stock received in a tax-free stock dividend
C)Preferred stock received in a tax-free reorganization.
D)Preferred stock received in a tax-free stock dividend.
E)None of the above.

Question 5

Nebula Corporation distributes property worth $100,000, basis of $50,000, 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)$40,000.
B)$50,000.
C)$90,000.
D)$100,000.
E)None of the above.

Question 6

Five years ago, Sophie transferred property she had used in her sole proprietorship to Galaxy Corporation for 100 shares of Galaxy 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 $600,000 on the date of the transfer.In the current year, Galaxy Corporation (E & P of $900,000) redeems 20 shares from Sophie for $300,000 in a transaction that qualifies for sale or exchange treatment.With respect to the redemption, Sophie will have a:

A)$300,000 dividend.
B)$300,000 capital gain.
C)$220,000 dividend.
D)$220,000 capital gain.
E)None of the above.

Question 7

Hubble Corporation has 1,000 shares of common stock outstanding.Jeffrey owns 300 of the shares, Jeffrey's grandfather owns 200 shares, Jeffrey's daughter owns 300 shares, and Quasar Corporation owns 200 shares.Jeffrey owns 60% of the stock in Quasar Corporation.How many shares is Jeffrey deemed to own in Hubble Corporation under the attribution rules of § 318?

A)300.
B)600.
C)720.
D)800.
E)None of the above.