Deck 6: Corporations: Redemptions and Liquidations

Question 1

Betty's adjusted gross estate is $9 million.The death taxes and funeral and administration expenses of her estate total $1.2 million.Included in Betty's gross estate is stock in Heron Corporation,valued at $3.3 million as of the date of her death in 2012.Betty had acquired the stock six years ago at a cost of $810,000.If Heron Corporation redeems $1.2 million 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.

Answer 1

True

Question 2

Sally and her mother are the sole shareholders of Owl Corporation.During the current year,Owl distributes cash in redemption of all of Sally's stock.Sally continues to be employed as controller for Owl after the redemption.The distribution is a complete termination redemption resulting in sale or exchange treatment for Sally.

Answer 2

False

Question 3

For tax purposes,all stock redemptions are treated as dividend distributions.

Answer 3

False

Question 4

Vireo Corporation redeemed shares from its sole shareholder pursuant to a written agreement between the parties that clearly identified the transaction as a stock redemption (and not a dividend distribution).Since the agreement is binding under state law,the shareholder will receive sale or exchange treatment with respect to the redemption.

Question 5

At the time of her death,Janice owned (in terms of the value of the stock outstanding)the following stock: 18% of Heron Corporation and 21% of Hawk Corporation.The value of these stocks is included in Janice's gross estate.For purposes of applying the 35% of the value of adjusted gross estate requirement under § 303 (i.e. ,redemption to pay death taxes),the Heron and Hawk stocks are aggregated.

Question 6

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.The loan to Robin Corporation does not constitute a prohibited interest for purposes of the family attribution waiver.

Question 7

In determining whether a distribution qualifies as a § 303 redemption to pay death taxes,the stock attribution rules must be applied.

Question 8

Yolanda owns 60% of the outstanding stock of Amber Corporation.In a qualifying stock redemption,Amber distributes $20,000 to Yolanda in exchange for one-half of her shares (basis of $35,000).As a result of the redemption,Yolanda has a recognized capital loss of $15,000.

Question 9

For purposes of a partial liquidation,the termination of a business test is a subjective test that should be relied upon only after obtaining a favorable ruling from the IRS.

Question 10

Puffin Corporation's 2,000 shares outstanding are owned as follows: Paul,800 shares;Sandra (Paul's sister),800 shares;and Greta (Paul's granddaughter),400 shares.During the current year,Puffin (E & P of $1 million)redeemed 600 shares of Paul's stock for $100,000.If Paul had acquired the 600 shares five years ago for $30,000,he will have a long-term capital gain of $70,000 from the redemption.

Question 11

For purposes of a partial liquidation,a distribution is not essentially equivalent to a dividend if it results in a genuine contraction of the business of the corporation.

Question 12

Six years ago,Ronald and his mom each owned 50% of the stock of Bronze Corporation.At such time,Bronze redeemed all of Ronald's stock.For the redemption year,Ronald filed the agreement required of the family attribution waiver and reported the transaction as a complete termination redemption (i.e. ,sale or exchange).In the current year,the mom passed away and willed her entire stock interest in Bronze to Ronald.The inheritance of Bronze stock by Ronald is a prohibited interest for purposes of the family attribution waiver.

Question 13

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

Question 14

The Code treats corporate distributions that are a return of a shareholder's investment as sales or exchanges and corporate distributions that are a return from a shareholder's investment as dividends.

Question 15

As a result of a redemption,a shareholder's interest (direct and indirect)in the corporation decreased from 58% to 45%.The redemption qualifies for sale or exchange treatment as a disproportionate redemption.

Question 16

In applying the stock attribution rules to a stock redemption,stock owned by a shareholder who owns 65% of a corporation is deemed to be owned in full by the corporation.

Question 17

To qualify a partial liquidation under the termination of a business test,the distribution must consist of the proceeds from the sale of a qualified trade or business.

Question 18

Grackle Corporation (E & P of $600,000)distributes cash of $200,000 and land (fair market value of $400,000;basis of $250,000)to a shareholder in a qualifying stock redemption.The land distributed is subject to a mortgage of $460,000.Grackle will recognize a gain of $150,000 as a result of the distribution.

Question 19

In a not essentially equivalent redemption [§ 302(b)(1)],the meaningful reduction test is an objective safe harbor rule that taxpayers can rely upon for sale or exchange treatment.

Question 20

A shareholder's holding period of property acquired in a stock redemption begins on the date of the distribution.

Question 21

Tammy forms White Corporation in a transaction qualifying under § 351.In that transaction,Tammy transferred cash and equipment in exchange for White Corporation common (1,000 shares)and preferred (200 shares)stock.The preferred stock is § 306 stock for Tammy.

Question 22

Sparrow Corporation purchased 90% of the stock of Warbler Corporation eight years ago for $1 million.In the current year,Sparrow liquidates Warbler and acquires assets with a basis to Warbler of $850,000 (fair market value of $1.2 million).Sparrow will have a basis in the assets of $850,000 (Warbler's basis in the assets),and a recognized loss of $150,000 ($1 million basis in Warbler stock - $850,000 carryover basis in assets).

Question 23

Three years ago,Darlene received preferred (§ 306)stock pursuant to a nontaxable stock dividend from Grackle Corporation.In the current year,Darlene gives the Grackle preferred stock to her sister,Nancy.The Grackle preferred stock is § 306 stock with regards to Nancy.

Question 24

The related-party loss limitation does not apply to a distribution of property in complete liquidation that was appreciated (fair market value greater than basis)when it was transferred to the corporation.

Question 25

The built-in loss limitation in a complete liquidation does not apply to losses attributable to a decline in a property's fair market value after its transfer to the corporation.

Question 26

For purposes of the application of § 304 (redemptions through the use of related corporations),a shareholder must own (directly or indirectly)at least 50% of the stock of two more corporations.

Question 27

Pursuant to a liquidation,Coral Corporation distributes to Lucinda,a shareholder,land (basis of $90,000,fair market value of $200,000).The land is subject to a $75,000 liability.Lucinda will have a basis of $125,000 in the land.

Question 28

The related-party loss limitation in a complete liquidation can apply to a distribution or sale of property while the built-in loss limitation applies only to distributions of property.

Question 29

Swan Corporation incurred $10,000 of accounting fees and $15,000 of legal fees in connection with the redemption of stock from its shareholders.None of the expenditures are deductible by Swan.

Question 30

The sale of § 306 stock to a third party results in dividend income to the shareholder.

Question 31

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.Abel will have dividend income as a result of the sale of Beige stock.

Question 32

One difference between the tax treatment accorded nonliquidating and liquidating distributions is with respect to the recognition of losses by the distributing corporation.As a general rule,a corporation recognizes losses on liquidating distributions of depreciated property (fair market value less than basis)but not on nonliquidating distributions of such property.

Question 33

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

Question 34

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

Question 35

At a time when Blackbird Corporation had E & P of $700,000 and 1,000 shares of stock outstanding,the corporation distributed $300,000 to redeem 400 shares of its stock.The transaction qualified as a disproportionate redemption for the shareholder.Blackbird's E & P is reduced by $280,000 as a result of the distribution.

Question 36

Brown Corporation purchased 85% of the stock of Green Corporation five years ago for $850,000.In the current year,Brown Corporation liquidates Green Corporation and acquires assets with a basis to Green Corporation of $700,000 (fair market value of $1.1 million).Brown Corporation will have a basis in the assets of $700,000,the same as Green's basis in the assets.

Question 37

A corporation generally will recognize gain or loss on a liquidating distribution of installment notes to its shareholders.

Question 38

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

Question 39

A subsidiary corporation is liquidated at a time when it is indebted to its parent corporation.The subsidiary corporation distributes property to the parent corporation in satisfaction of the indebtedness.If the liquidation is governed by § 332,neither the subsidiary nor the parent recognize gain or loss on the transfer of property in satisfaction of indebtedness.

Question 40

If a liquidation qualifies under § 332,any minority shareholder will recognize gain or loss equal to the difference between the fair market value of assets received and the basis of the shareholder's stock.

Question 41

Finch Corporation distributes property (basis of $225,000,fair market value of $300,000)to a shareholder in a distribution that is a qualifying stock redemption.The property is subject to a liability of $160,000,which the shareholder assumes.The basis of the property to the shareholder is:

A)$0.
B)$140,000.
C)$225,000.
D)$300,000.
E)None of the above.

Question 42

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

Question 43

Currently,Brown Corporation (E & P of $800,000)has 1,000 shares of common stock outstanding.Pat owns 200 shares.His wife owns 400 shares,his daughter owns 100 shares,and his father owns 300 shares.Two years ago,Pat transferred $30,000 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 $50,000,its fair market value.With respect to the distribution in redemption of the preferred stock:

A)Pat has a long-term capital gain of $20,000.
B)Pat has a long-term capital gain of $50,000.
C)Pat has dividend income of $20,000.
D)Pat has dividend income of $50,000.
E)None of the above.

Question 44

One advantage of acquiring a corporation via an asset purchase instead of a stock purchase is that an asset purchase avoids the transfer of the acquired corporation's liabilities.

Question 45

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 net operating loss carryover of $400,000.The net operating loss does not carry over to the parent.

Question 46

Ethel,Hannah,and Samuel,unrelated individuals,own the stock in Broadbill Corporation (E & P of $700,000)as follows: Ethel,300 shares;Hannah,300 shares;and Samuel,400 shares.Broadbill redeems 200 of Samuel's shares (basis of $175,000)for $250,000.If Samuel's stock is a capital asset and has been held for over three years,Samuel has:

A)A long-term capital gain of $75,000.
B)A short-term capital gain of $75,000.
C)Ordinary income of $250,000.
D)Ordinary income of $75,000.
E)None of the above.

Question 47

Ember Corporation has 500 shares of stock outstanding: Zoe owns 170 shares,Leticia owns 95 shares,and Samuel owns 55 shares.Sage Partnership owns the other 180 shares in Ember Corporation.Zoe,Leticia,and Samuel,all unrelated,are equal partners of the Sage Partnership.In applying the stock attribution rules under § 318:

A)Zoe owns,directly and indirectly,350 shares in Ember Corporation.
B)Samuel owns,directly and indirectly,115 shares in Ember Corporation.
C)Leticia owns,directly and indirectly,95 shares in Ember Corporation.
D)Sage Partnership owns,directly and indirectly,180 shares in Ember Corporation.
E)None of the above.

Question 48

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 $100,000 and a fair market value of $270,000 on the date of the transfer.In the current year,Blue Corporation (E & P of $800,000)redeems 250 shares from Eleanor for $220,000 in a transaction that does not qualify for sale or exchange treatment.With respect to the redemption,Eleanor will have a:

A)$195,000 capital gain.
B)$220,000 capital gain.
C)$195,000 dividend.
D)$220,000 dividend.
E)None of the above.

Question 49

Julian,Berta,and Maria own 400 shares,400 shares,and 200 shares,respectively,in Caramel Corporation (E & P of $750,000).Berta is Julian's sister,and Maria is Julian's aunt.Caramel Corporation redeems all of Julian's stock for $420,000.Julian paid $200 a share for the stock five years ago.Julian continued to serve on Caramel's board of directors after the redemption.With respect to the redemption:

A)Dividend income of $340,000.
B)Dividend income of $420,000.
C)Long-term capital gain of $340,000.
D)Long-term capital gain of $420,000.
E)None of the above.

Question 50

Leon owns 400 shares of the 1,000 outstanding shares of Crane Corporation (E & P of $650,000).None of the other shareholders of Crane are related to Leon.Leon acquired his Crane shares ten years ago for $60,000.Crane has operated several trades or businesses for more than five years.In the current year,Crane sells the assets of one of those trades or businesses and distributes the proceeds from the asset sale to the shareholders in a pro rata stock redemption.In this transaction,Leon receives $180,000 in redemption of 250 shares of Crane.As a result of this transaction,Leon will recognize:

A)$142,500 long-term capital gain.
B)$142,500 dividend income.
C)$180,000 dividend income.
D)$180,000 long-term capital gain.
E)None of the above.

Question 51

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 $100,000 and a fair market value of $270,000 on the date of the transfer.In the current year,Blue Corporation ( E & P $800,000)redeems 250 shares from Eleanor for $220,000 in a transaction that qualifies for sale or exchange treatment.With respect to the redemption,Eleanor will have a:

A)$195,000 capital gain.
B)$220,000 capital gain.
C)$195,000 dividend.
D)$220,000 dividend.
E)None of the above.

Question 52

Keshia owns 200 shares in Parakeet Corporation.Keshia has a 30% beneficiary interest in her deceased grandmother's estate.The estate owns 400 shares in Parakeet Corporation.None of the other beneficiaries of the estate own stock in Parakeet.In applying the § 318 attribution rules:

A)The estate owns 400 shares.
B)Keshia owns 320 shares.
C)Keshia owns 600 shares.
D)The estate owns 460 shares.
E)None of the above.

Question 53

Lucinda owns 1,100 shares of Blackbird Corporation stock at a time when Blackbird has 2,000 shares of stock outstanding.The remaining shareholders are unrelated to Lucinda.What is the minimum number of shares Blackbird must redeem from Lucinda so that the transaction will qualify as a disproportionate redemption?

A)220.
B)393.
C)484.
D)880.
E)None of the above.

Question 54

Which of the following is an incorrect statement regarding the application of the § 318 stock attribution rules?

A)An individual is not deemed to own the shares owned by his or her siblings.
B)Stock owned by an estate is deemed to be owned in full by a beneficiary.
C)Stock owned by any shareholder owning 50% or more of a corporation's stock is deemed to be owned in full by the corporation.
D)Stock owned by a partnership is deemed to be owned proportionately by a partner.
E)None of the above.

Question 55

Lupe and Rodrigo,father and son,each own 50% of the stock outstanding of Heron Corporation (E & P of $400,000).During the current year,Heron redeems all of Lupe's shares for $250,000.The transaction cannot qualify as a complete termination redemption if:

A)Three years after the redemption,Lupe receives shares of stock in Heron as a gift from Rodrigo.
B)Lupe received a $250,000 note receivable from Heron in the stock redemption.
C)Lupe loaned Heron Corporation $50,000 two years following the redemption.
D)Rodrigo continued to serve on Heron Corporation's board of directors for five years following the redemption.
E)More than one of the above is correct.

Question 56

Kite Corporation has 1,000 shares of stock outstanding.Kent owns 300 shares,Kent's father owns 200 shares,Kent's daughter owns 100 shares,and Kent's aunt owns 200 shares.Plover Corporation owns the other 200 shares in Kite Corporation.Kent owns 75% of the stock in Plover Corporation.Applying the § 318 stock attribution rules,how many shares does Kent own in Kite Corporation?

A)500.
B)600.
C)750.
D)950.
E)None of the above.

Question 57

Hannah,Greta,and Winston own the stock in Redpoll Corporation (E & P of $900,000)as follows: Hannah,600 shares;Greta,400 shares;and Winston,1,000 shares.Greta is Hannah's daughter,and Winston is Hannah's brother.Redpoll Corporation redeems 400 of Hannah's shares (basis of $55,000)for $240,000.Hannah purchased the stock three years ago as an investment.With respect to the stock redemption,Hannah has:

A)Long-term capital gain of $185,000.
B)Long-term capital gain of $240,000.
C)Dividend income of $185,000.
D)Dividend income of $240,000.
E)None of the above.

Question 58

Hazel,Emily,and Frank,unrelated individuals,own all of the stock in Wren Corporation (E & P of $1.2 million)as follows: Hazel,1,300 shares;Emily,400 shares;and Frank,300 shares.Wren redeems 300 of Hazel's shares (basis of $60,000)for $450,000.With respect to the distribution in redemption of the stock:

A)Hazel has a capital gain of $390,000.
B)Hazel has dividend income of $450,000.
C)Hazel has dividend income of $390,000.
D)Hazel has a capital gain of $450,000.
E)None of the above.

Question 59

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 60

A parent corporation must make the § 338 election by the fifteenth day of the third month following the close of the tax year in which a qualified stock purchase occurs.

Question 61

The adjusted gross estate of Keith,decedent,is $6 million.Included in the gross estate is stock in Gold Corporation (E & P of $750,000),a closely held corporation,valued at $2.4 million as of the date of Keith's death in 2012.Keith had acquired the stock twelve years ago at a cost of $420,000.Death taxes and funeral and administration expenses for Keith's estate are $1.2 million.Gold Corporation redeems one-half of the stock from Keith's estate in a § 303 redemption to pay death taxes using property with a fair market value of $1.2 million (adjusted basis of $950,000).Which of the following is a correct statement regarding the tax consequences of this redemption?

A)The estate will have a basis of $950,000 in the property received from Gold Corporation in redemption of the estate's stock.
B)Gold Corporation will not reduce its E & P as a result of the distribution of the property to Keith's estate.
C)The estate will recognize a $990,000 long-term capital gain on the redemption.
D)Gold Corporation will recognize gain of $250,000 on the distribution of the property to Keith's estate.
E)None of the above.

Question 62

The stock in Toucan Corporation is held equally by two brothers.Four years ago,the shareholders transfer property (basis of $200,000,fair market value of $220,000)to Toucan Corporation as a contribution to capital.In the current year and pursuant to a complete liquidation of Toucan,the property is distributed proportionately to the brothers.At the time of the distribution,the property had a fair market value of $40,000.What amount of loss will Toucan Corporation recognize on the distribution of the property?

A)$0.
B)$20,000.
C)$160,000.
D)$180,000.
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)The basis of property acquired is its fair market value on the date of distribution for both a qualifying stock redemption and a liquidation.
C)Both a qualifying stock redemption and a complete liquidation produce sale or exchange treatment to the shareholder.
D)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 qualifying stock redemption.
E)Section 267 disallows recognition of losses between related parties in a qualifying stock redemption but not in a complete liquidation.

Question 64

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

A)No loss is recognized on the sale.
B)The issuing corporation reduces its E & P by the amount of sales proceeds.
C)The shareholder generally recognizes ordinary income equal to the fair market value of the preferred stock on the date of the stock dividend.
D)Any ordinary income recognized by the shareholder qualifies for the 15% (or 0%)maximum tax rate that applies to dividend income.
E)None of the above.

Question 65

Connie sold 200 shares of § 306 stock (basis of $10,000)in Blackbird Corporation to Larry (an unrelated individual)for $30,000.When the § 306 stock was issued to Connie,the stock had a value of $30,000,and Blackbird had E & P of $500,000.At the time the § 306 stock is sold,Blackbird's E & P is $550,000.At the time of the sale,Connie owned 750 shares of common stock (basis of $65,000)in Blackbird.With respect to the sale of the § 306 stock by Connie:

A)Connie has a $30,000 capital gain.
B)Blackbird Corporation reduces its E & P by $30,000.
C)Connie has a $20,000 capital gain.
D)Connie has a $75,000 basis in the common stock.
E)None of the above.

Question 66

Canary Corporation has 1,000 shares of stock outstanding.It redeems in a qualifying stock redemption 350 shares for $400,000 at a time when it has paid-in capital of $100,000 and E & P of $1 million.What would be the charge to Canary's E & P as a result of the redemption?

A)$40,000.
B)$140,000.
C)$350,000.
D)$400,000.
E)None of the above.

Question 67

The stock in Tangerine Corporation is held by two unrelated individuals,Janet (60%)and Joaquin (40%).One year before the liquidation of Tangerine,the shareholders transfer properties to the corporation in a transaction that qualifies under § 351.Included in that transfer was land (basis of $600,000,fair market value of $650,000).Pursuant to its liquidation in the current year,Tangerine Corporation distributes the land (now worth $500,000)pro rata to the shareholders.What amount of loss will Tangerine recognize on the distribution?

A)$0.
B)$40,000.
C)$60,000.
D)$100,000.
E)None of the above.

Question 68

Pursuant to a complete liquidation,Oriole Corporation distributes to its shareholders land with a basis of $350,000 and a fair market value of $800,000.The land is subject to a liability of $920,000.What is Oriole's recognized gain or loss on the distribution?

A)$0.
B)$120,000 loss.
C)$120,000 gain.
D)$450,000 gain.
E)None of the above.

Question 69

In the current year,Loon Corporation made a distribution in redemption of some of its shares.Loon incurred expenditures in connection with the redemption totaling $35,000 (accounting fees of $9,000,legal fees of $20,000,and brokerage fees of $6,000).The distribution was a qualifying stock redemption.How much of the $35,000 is deductible in the current year?

A)$6,000.
B)$9,000.
C)$29,000.
D)$35,000.
E)None of the above.

Question 70

Rodolfo makes a gift of § 306 stock (basis of $75,000,fair market value of $100,000)in Kiwi Corporation to his daughter,Josie.When the stock was issued to Rodolfo,his share of Kiwi Corporation's E & P was $80,000.When its E & P is $200,000,Kiwi Corporation redeems all of Josie's stock for $100,000.With respect to the stock redemption:

A)Josie will recognize a capital gain of $25,000.
B)The redemption does not reduce Kiwi Corporation's E & P.
C)Josie will recognize dividend income of $80,000.
D)Josie will recognize dividend income of $100,000.
E)None of the above.

Question 71

Purple Corporation has two equal shareholders,Joshua and Ellie,who are father and daughter.One year ago,the two shareholders transferred properties to Purple in a § 351 exchange.Joshua transferred land (basis of $400,000,fair market value of $350,000)and securities (basis of $20,000,fair market value of $80,000),while Ellie transferred equipment (basis of $220,000,fair market value of $430,000).In the current year,Purple Corporation adopts a plan of liquidation,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 $290,000 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 land?

A)$0.
B)$50,000.
C)$60,000.
D)$110,000.
E)None of the above.

Question 72

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 § 318 stock attribution rules do not apply to the redemption.
C)The value of the stock in the decedent's gross estate must exceed 40% of the value of the adjusted gross estate.
D)A corporation recognizes gains and losses on the distribution of property in the redemption.
E)None of the above.

Question 73

Magenta Corporation acquired land in a § 351 exchange one year ago.The land had a basis of $320,000 and a fair market value of $350,000 on the date of the transfer.Magenta Corporation has two shareholders,Mark (70%)and Megan (30%),who are brother and sister.Magenta Corporation adopts a plan of liquidation in the current year.On this date,the land has decreased in value to $250,000.Magenta Corporation sells the land for $250,000 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)$21,000.
C)$30,000.
D)$70,000.
E)None of the above.

Question 74

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 $40,000)to Navy for $70,000,its fair market value.Joe purchased the stock in Green six years ago.Joe has:

A)Dividend income of $70,000.
B)A long-term capital gain of $70,000.
C)Dividend income of $30,000.
D)A long-term capital gain of $30,000.
E)None of the above.

Question 75

The gross estate of John,decedent,includes stock in Crimson Corporation and Jade Corporation valued at $1.3 million and $2 million,respectively.John's adjusted gross estate is $9 million.He owned 23% of the Crimson stock and 31% of the Jade stock.Immediate members of John's family own the remaining shares of both Crimson and Jade.Those individuals are also the sole beneficiaries of John's estate.Death taxes and funeral and administration expenses for John's estate are $1.3 million.John had a basis of $475,000 in the Crimson stock and $510,000 in the Jade stock.Crimson Corporation (E & P of $3 million)distributed land worth $1.3 million (basis of $800,000)to John's estate in redemption of all of the Crimson stock.Which of the following is a correct statement regarding the tax consequences of this redemption?

A)The estate recognizes dividend income of $1.3 million on the redemption.
B)Crimson Corporation recognizes no gain on the distribution of the land.
C)The estate recognizes no gain or loss on the redemption.
D)The estate has a basis of $800,000 in the land.
E)None of the above.

Question 76

Pursuant to a complete liquidation,Lilac Corporation distributes the following assets to its unrelated shareholders: land held for three years as an investment (basis of $300,000,fair market value of $600,000),inventory (basis of $100,000,fair market value of $80,000),and marketable securities held for four years as an investment (basis of $200,000,fair market value of $240,000).What are the tax consequences to Lilac Corporation as a result of the liquidation?

A)Lilac Corporation would recognize no gain or loss on the liquidation.
B)Lilac Corporation would recognize a net capital gain of $320,000.
C)Lilac Corporation would recognize a net capital gain of $340,000 and an ordinary loss of $20,000.
D)Lilac Corporation would recognize a net capital gain of $340,000.
E)None of the above.

Question 77

To carry out a qualifying stock redemption,Turaco Corporation (E & P of $800,000)transfers land held for investment purposes to Aida,a shareholder.The land had a basis of $250,000,a fair market value of $400,000,and is subject to a $300,000 liability.Aida has a basis of $70,000 in the shares redeemed.Which of the following is a correct statement regarding the tax consequences of this redemption?

A)Aida will have $400,000 of dividend income.
B)Aida will have a $100,000 basis in the land.
C)Turaco Corporation will recognize a gain of $50,000.
D)Aida will recognize a gain of $30,000.
E)None of the above.

Question 78

Which of the following statements is correct with respect to a partial liquidation?

A)The genuine contraction of a corporate business requirement is an objective test that taxpayers can rely upon with certainty.
B)The distribution of proceeds from the sale of excess inventory to shareholders in exchange for part of their stock will not satisfy the not essentially equivalent to a dividend test.
C)A stock redemption pursuant to a partial liquidation cannot be pro rata with respect to the shareholders.
D)The termination of a business test requires that the distributing corporation actively conducted at least three trades or businesses for at least five years.
E)None of the above.

Question 79

Vulture Corporation distributes land (basis of $250,000,fair market value of $475,000)to Bonita,a shareholder,to carry out a qualifying stock redemption.The land is distributed subject to a $300,000 liability.Bonita had a basis of $25,000 in the shares redeemed.With respect to the redemption:

A)Vulture Corporation will recognize a gain of $50,000.
B)Vulture Corporation will recognize a gain of $225,000.
C)Bonita will recognize a gain of $450,000.
D)Bonita will have a basis of $175,000 in land.
E)None of the above.

Question 80

The adjusted gross estate of Debra,decedent,is $8 million.Debra's estate will incur death taxes and funeral and administration expenses of $1 million.Debra's gross estate includes stock in Silver Corporation that she had purchased twelve years ago for $600,000 (date of death fair market value of $3 million).At the time of her death in 2012,Debra owned 80% of the stock in Silver Corporation.Silver Corporation (E & P of $4 million)redeems all of the estate's stock in the corporation for $3 million.Debra's will names her daughter,Dena,who owns the remaining 20% interest in Silver Corporation,as her sole heir.With respect to this redemption,Debra's estate has the following income:

A)$0.
B)$2.4 million long-term capital gain.
C)$1 million dividend.
D)$3 million dividend.
E)None of the above.