Deck 6: Corporations: Redemptions and Liquidations

Question 1

Sally and her brother 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 1

True

Question 2

Bluebird Corporation's 1,000 shares outstanding are owned as follows: Lucinda,350 shares;Carl (Lucinda's father),300 shares;and Nancy (Lucinda's sister),350 shares.During the current year,Bluebird (E & P of $800,000)redeemed 200 shares of Lucinda's stock for $50,000.If Lucinda had acquired the 200 shares five years ago for $10,000,she will have a long-term capital gain of $40,000 from the redemption.

Answer 2

False

Question 3

For purposes of a partial liquidation,the "not essentially equivalent to a dividend" test is applied at the corporate level.

Answer 3

True

Question 4

In a redemption to pay death taxes,stock in corporations in which the decedent held a 20% or more interest is treated as stock in a single corporation for purposes of determining whether the value of stock owned by the decedent exceeds 35% of the value of the decedent's adjusted gross estate.

Question 5

Noncorporate shareholders generally prefer a nonqualified stock redemption over a qualifying stock redemption due to the availability of the dividends received deduction.

Question 6

In general,a nonqualified stock redemption is denied sale or exchange treatment because the shareholder's ownership interest in the corporation is not sufficiently diminished as result of the redemption.

Question 7

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 8

All of the stock in Robin Corporation (E & P of $800,000)is held by three unrelated individuals as follows: Shontelle has 300 shares,Marta has 200 shares,and Diego owns 500 shares.Robin Corporation redeems 200 of Diego's shares (basis of $10,000)for $40,000.If Diego's stock is a capital asset that has been held for the requisite holding period,he has a long-term capital gain of $30,000.

Question 9

In a not essentially equivalent redemption [§ 302(b)(1)],the family attribution rules of § 318 apply.

Question 10

Betty's adjusted gross estate is $7 million.The death taxes and funeral and administration expenses of her estate total $800,000.Included in Betty's gross estate is stock in Heron Corporation,valued at $2.1 million as of the date of her death in 2009.Betty had acquired the stock six years ago at a cost of $410,000.If Heron Corporation redeems $800,000 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.

Question 11

At a time when Blackbird Corporation had E & P of $950,000 and 1,000 shares of stock outstanding,the corporation distributed $250,000 to redeem 300 shares of its stock.The transaction qualified as a disproportionate redemption for the shareholder.Blackbird's E & P is reduced by $285,000 as a result of the distribution.

Question 12

In applying the stock attribution rules to a stock redemption,stock owned by a 50% or more shareholder of a corporation is deemed to be owned in full by the corporation.

Question 13

In applying the stock attribution rules to a stock redemption,a shareholder is treated as owning the stock of the following family members: spouses,children,grandchildren,siblings,and parents.

Question 14

A partial liquidation cannot result in sale or exchange treatment to a shareholder if it results in a pro rata stock redemption.

Question 15

In 2007,Floyd carried out a successful complete termination redemption of his stock in Gray Corporation.Floyd was able to qualify the transaction as a complete termination redemption only by use of the family attribution waiver.In 2010,Floyd receives stock in Gray Corporation as a gift from his father.Floyd has acquired a prohibited interest within the 10-year postredemption period and,as a result,the 2007 redemption no longer qualifies as a complete termination redemption.

Question 16

A shareholder's basis in property received in a stock redemption is the property's fair market value.

Question 17

Grackle Corporation (E & P of $900,000)distributes cash of $100,000 and land (fair market value of $500,000;basis of $410,000)to a shareholder in a qualifying stock redemption.The land distributed is subject to a mortgage of $550,000.Grackle will recognize a gain of $140,000 as a result of the distribution.

Question 18

A shareholder's holding period of property acquired in a stock redemption includes that of the distributing corporation.

Question 19

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 constitutes a prohibited interest for purposes of the family attribution waiver.

Question 20

For a stock redemption to qualify for sale or exchange treatment under § 303 (redemption to pay death taxes),it need not satisfy any of the § 302 redemption provisions.

Question 21

Swan Corporation incurred $10,000 of accounting fees and $15,000 of legal fees in connection with the redemption of stock from its shareholders.Swan can deduct the accounting fees ($10,000),but not the legal fees ($15,000),as trade or business expenses under § 162.

Question 22

If a parent corporation makes a § 338 election,the subsidiary recognizes gains and losses as result of a deemed sale of its assets.

Question 23

When a shareholder receives property subject to a liability pursuant to a complete liquidation (not a parent-subsidiary liquidation),the fair market value of the property is reduced by the amount of the liability in computing the shareholder's gain (or loss)on the liquidation.

Question 24

If a parent corporation makes a § 338 election,the subsidiary corporation need not be liquidated.

Question 25

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 E & P of $600,000 at the time of liquidation.The subsidiary's E & P disappears as a result of the liquidation.

Question 26

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 not § 306 stock with regards to Nancy.

Question 27

Shareholders may defer gain,to the point of collection,on a liquidating distribution of installment notes obtained by the corporation in the sale of its assets.

Question 28

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.Since the transaction was not a stock redemption by Beige,Abel has avoided the qualifying stock redemption provisions.

Question 29

Legal dissolution under state law is not required for a liquidation to be complete for tax purposes.

Question 30

For purposes of the related-party loss limitation,"disqualified property" is defined as property that is acquired by the liquidating corporation in a § 351 or contribution to capital transaction during the two-year period ending on the date of the distribution.

Question 31

For purposes of the built-in loss limitation,the 2-year presumptive rule of tax avoidance can be rebutted if there is a clear and substantial relationship between the contributed property and the corporation's business.

Question 32

As a general rule,a liquidating corporation recognizes gains and losses on the distribution of property in complete liquidation.

Question 33

The ordinary income resulting from a sale of § 306 stock is taxed at the preferential rate applicable to dividend income.

Question 34

Brown Corporation purchased 85% of the stock of Green Corporation five years ago for $1.2 million.In the current year,Brown Corporation liquidates Green Corporation and acquires assets with a basis to Green Corporation of $800,000 (fair market value of $1.3 million).Brown Corporation will have a basis in the assets of $1.2 million,the same as Brown's basis in the Green stock.

Question 35

In the current year,Donovan sells to an unrelated individual 500 shares of preferred stock in Flamingo Corporation for $15,000.Donovan received the preferred stock in a nontaxable stock dividend four years ago from Flamingo (E & P of $700,000).At that time,the preferred stock had a fair market value of $45,000,and $20,000 of common stock basis was properly allocated to the preferred stock.Donovan will recognize a $5,000 loss as a result of the sale of the preferred stock.

Question 36

One similarity 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 both nonliquidating and liquidating distributions of depreciated property (fair market value less than basis).

Question 37

For purposes of the § 338 election,a corporation must acquire,in a taxable transaction,at least 50% of the stock (voting power and value)of another corporation within an 12-month period.

Question 38

Section 332 will apply to a parent-subsidiary liquidation even if the subsidiary corporation is insolvent on the date of the liquidation.

Question 39

For purposes of the application of § 304 (redemptions through the use of related corporations),a shareholder must own (direct or indirectly)at least 80% of the stock of two more corporations.

Question 40

If a liquidation qualifies under § 332,any minority shareholder will recognize gain (but not loss)equal to the difference between the fair market value of assets received and the basis of the shareholder's stock.

Question 41

The gross estate of April,decedent,includes stock in Brown Corporation and Parrot Corporation valued at $700,000 and $1.3 million,respectively.April's adjusted gross estate is $5 million.At the time of her death in 2009,April owned 24% of the Brown stock and 40% of the Parrot stock.Immediate members of April's family own the remaining shares of both Brown and Parrot.Those individuals are also the sole beneficiaries of April's estate.Death taxes and funeral and administration expenses for April's estate are $700,000.April had a basis of $130,000 in the Brown stock and $290,000 in the Parrot stock.Brown Corporation (E & P of $900,000)distributed land worth $700,000 (basis of $650,000)to April's estate in redemption of all of the Brown stock.Which of the following is a correct statement regarding the tax consequences of this redemption?

A)The estate has a basis of $650,000 in the land.
B)The estate recognizes $700,000 of dividend income on the redemption.
C)Brown Corporation recognizes no gain (or loss)on the distribution of the land.
D)The estate recognizes no gain (or loss)on the redemption.
E)None of the above.

Question 42

Domingo and Juan,brothers,each own 300 shares in White Corporation (E & P of $700,000).Heron Partnership owns the remaining 400 shares of stock in White Corporation,and Juan has a 25% interest in Heron Partnership.White Corporation redeems 200 shares of Juan's stock for $120,000.Juan paid $150 a share for the stock five years ago.With respect to the redemption:

A)Juan has a long-term capital gain of $90,000.
B)Juan has a long-term capital gain of $120,000.
C)Juan has dividend income of $90,000.
D)Juan has dividend income of $120,000.
E)None of the above.

Question 43

Kingbird Corporation (E & P of $800,000)has 1,000 shares of stock outstanding.That stock is held by Amata (550 shares)and Esteban (450 shares),who are unrelated individuals.Kingbird redeems 200 of Amata's shares for $1,000 per share.Amata paid $300 per share for her Kingbird stock nine years ago.Which of the following statements is correct with respect to the stock redemption?

A)Amata has dividend income of $200,000.
B)Amata has a long-term capital gain of $140,000.
C)Amata's basis in her remaining 350 shares is $60,000.
D)Kingbird reduces its E & P by $200,000.
E)None of the above.

Question 44

The adjusted gross estate of Keith,decedent,is $5 million.Included in the gross estate is stock in Gold Corporation (E & P of $900,000),a closely held corporation,valued at $1.8 million as of the date of Keith's death in 2009.Keith had acquired the stock twelve years ago at a cost of $300,000.Death taxes and funeral and administration expenses for Keith's estate are $900,000.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 $900,000 (adjusted basis of $550,000).Which of the following is a correct statement regarding the tax consequences of this redemption?

A)The estate will have a basis of $900,000 in the property received from Gold Corporation in redemption of the estate's stock.
B)Gold Corporation will recognize no gain on the distribution of the property to Keith's estate.
C)Gold Corporation will not reduce its E & P as a result of the distribution of the property to Keith's estate.
D)The estate will recognize a $750,000 long-term capital gain on the redemption.
E)None of the above.

Question 45

Brenda owns 900 shares of Eagle Corporation stock at a time when Eagle has 1,500 shares of stock outstanding.The remaining shareholders are unrelated to Brenda.What is the minimum number of shares Eagle must redeem from Brenda so that the transaction will qualify as a disproportionate redemption?

A)180 shares.
B)347 shares.
C)375 shares.
D)720 shares.
E)None of the above.

Question 46

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 $300,000 and a fair market value of $450,000 on the date of the transfer.In the current year,Blue Corporation (E & P of $600,000)redeems 200 shares from Eleanor for $190,000 in a transaction that does not qualify for sale or exchange treatment.With respect to the redemption,Eleanor will have a:

A)$130,000 dividend.
B)$190,000 dividend.
C)$130,000 capital gain.
D)$190,000 capital gain.
E)None of the above.

Question 47

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 2009,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)$2 million dividend.
E)None of the above.

Question 48

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

A)A stock redemption pursuant to a partial liquidation cannot be pro rata with respect to the shareholders.
B)The distribution of proceeds from the sale of marketable securities (held for investment)to shareholders in exchange for part of their stock will satisfy the not essentially equivalent to a dividend test.
C)The genuine contraction of a corporate business requirement is a subjective test that taxpayers cannot rely upon with certainty.
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 49

Cardinal Corporation has 1,000 shares of common stock outstanding.John owns 400 of the shares,John's father owns 300 shares,John's daughter owns 200 shares,and Redbird Corporation owns 100 shares.John owns 70% of the stock in Redbird Corporation.How many shares is John deemed to own in Cardinal Corporation under the attribution rules of § 318?

A)400.
B)600.
C)700.
D)1,000.
E)None of the above.

Question 50

Leon owns 600 shares of the 1,000 outstanding shares of Crane Corporation (E & P of $500,000).None of the other shareholders of Crane are related to Leon.Leon acquired his Crane shares ten years ago for $90,000.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 $200,000 in redemption of 200 shares of Crane.As a result of this transaction,Leon will recognize:

A)No gain or loss.
B)$170,000 dividend income.
C)$200,000 dividend income.
D)$200,000 long-term capital gain.
E)None of the above.

Question 51

Hazel,Emily,and Frank,unrelated individuals,own all of the stock in Wren Corporation (E & P of $900,000)as follows: Hazel,250 shares;Emily,250 shares;and Frank,1,000 shares.Wren redeems 400 of Frank's shares (basis of $40,000)for $200,000.With respect to the distribution in redemption of the stock:

A)Frank has a capital gain of $200,000.
B)Frank has dividend income of $200,000.
C)Frank has dividend income of $160,000.
D)Frank has a capital gain of $160,000.
E)None of the above.

Question 52

Crow Corporation has 800 shares of stock outstanding.Ted owns 300 shares,Ted's mother owns 100 shares,Ted's sister owns 80 shares,and Ted's granddaughter owns 120 shares.Bluebird Corporation owns the remaining 200 shares of stock in Crow.Ted owns 30% of the stock in Bluebird Corporation.In applying the § 318 stock attribution rules,how many shares does Ted own in Crow Corporation?

A)300.
B)400.
C)520.
D)550.
E)None of the above.

Question 53

Orange Corporation distributes property worth $300,000,basis of $340,000,to a shareholder in a distribution that is a qualifying stock redemption.The property is subject to a liability of $110,000,which the shareholder assumes.The basis of the property to the shareholder is:

A)$190,000.
B)$230,000.
C)$300,000.
D)$340,000.
E)None of the above.

Question 54

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 $300,000 and a fair market value of $450,000 on the date of the transfer.In the current year,Blue Corporation (E & P of $600,000)redeems 200 shares from Eleanor for $190,000 in a transaction that qualifies for sale or exchange treatment.With respect to the redemption,Eleanor will have a:

A)$130,000 dividend.
B)$190,000 dividend.
C)$130,000 capital gain.
D)$190,000 capital gain.
E)None of the above.

Question 55

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

A)Stock owned by a partner is deemed to be owned in full by a partnership.
B)Stock owned by a beneficiary is deemed to be owned in full by an estate.
C)An individual is deemed to own the shares owned by his or her spouse,children,grandchildren,or parents.
D)Stock owned by a corporation is deemed to be owned proportionately by any shareholder owning 50% or more of the corporation's stock.
E)None of the above.

Question 56

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)Lupe filed an agreement with his return to notify the IRS of any prohibited interest acquired in the 10-year postredemption period.
B)Lupe received a $250,000 note receivable from Heron in the stock redemption.
C)Lupe continued to serve on Heron Corporation's board of directors for one year following the redemption.
D)Lupe loaned Heron Corporation $50,000 two years following the redemption.
E)More than one of the above is correct.

Question 57

Carol,Bonnie,and Ann,sisters,own 300 shares,300 shares,and 400 shares,respectively,in Teal Corporation (E & P of $600,000).Teal Corporation redeems all of Ann's stock for $250,000.Ann paid $100 a share for the stock five years ago.Ann continued to serve as president of Teal after the redemption.With respect to the redemption:

A)Ann has a long-term capital gain of $210,000.
B)Ann has a long-term capital gain of $250,000.
C)Ann has dividend income of $210,000.
D)Ann has dividend income of $250,000.
E)None of the above.

Question 58

Currently,Brown Corporation (E & P of $800,000)has 1,000 shares of common stock outstanding.Pat owns 300 shares.His wife owns 300 shares,his daughter owns 200 shares,and his father owns 200 shares.Two years ago,Pat transferred $50,000 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 $60,000,its fair market value.With respect to the distribution in redemption of the preferred stock:

A)Pat has a long-term capital gain of $10,000.
B)Pat has a long-term capital gain of $60,000.
C)Pat has dividend income of $10,000.
D)Pat has dividend income of $60,000.
E)None of the above.

Question 59

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

Question 60

Hawk Corporation has 300 shares of stock outstanding: Marina owns 60 shares,Kent owns 90 shares,and Tom owns 75 shares.Blackbird Partnership owns the remaining 75 shares of stock in Hawk Corporation.Marina,Kent,and Tom,all unrelated,are equal partners of Blackbird Partnership.With respect to the stock attribution rules under § 318:

A)Marina owns,directly and indirectly,85 shares in Hawk Corporation.
B)Tom owns,directly and indirectly,150 shares in Hawk Corporation.
C)Kent owns,directly and indirectly,90 shares in Hawk Corporation.
D)Blackbird Partnership owns,directly and indirectly,150 shares in Hawk Corporation.
E)None of the above.

Question 61

During the current year,Ecru Corporation is liquidated and distributes its only asset,land,to Kena,the sole shareholder.On the date of distribution,the land has a basis of $300,000,a fair market value of $650,000,and is subject to a liability of $400,000.Kena,who takes the land subject to the liability,has a basis of $75,000 in the Ecru stock.With respect to the distribution of the land,which of the following statements is correct?

A)Ecru Corporation recognizes a gain of $100,000.
B)Kena has a basis of $250,000 in the land.
C)Kena recognizes a gain of $175,000.
D)Kena has a basis of $300,000 in the land.
E)Kena recognizes a gain of $575,000.

Question 62

Hubert,the sole shareholder of Owl Corporation,receives a nontaxable stock dividend of 100 shares of preferred stock from Owl (E & P of $120,000).As a result of the stock dividend,Hubert properly allocates $40,000 of his common stock basis to the preferred stock.Two years after the stock dividend,Hubert sells the preferred stock to Thomas,an unrelated party,for $150,000.Owl's E & P at the time of the sale is $300,000.With respect to the sale of the preferred stock:

A)Hubert has ordinary income of $150,000.
B)Hubert has a long-term capital gain of $110,000.
C)Owl Corporation reduces its E & P by $120,000.
D)Owl Corporation reduces its E & P by $150,000.
E)None of the above.

Question 63

Magenta Corporation acquired land in a § 351 exchange one year ago.The land had a basis of $400,000 and a fair market value of $480,000 on the date of the transfer.Magenta Corporation has two equal shareholders,Mark and Megan,who are father and daughter.Magenta Corporation adopts a plan of liquidation in the current year.On this date,the land has decreased in value to $360,000.Magenta Corporation sells the land for $360,000 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)$20,000.
C)$40,000.
D)$130,000.
E)None of the above.

Question 64

After a plan of complete liquidation has been adopted,Condor Corporation sells its only asset,land (basis of $170,000),to Eduardo (an unrelated party)for $400,000.Under the terms of the sale,Condor Corporation receives cash of $100,000 and Eduardo's notes for the balance of $300,000.The notes are payable over the next five years ($60,000 per year)and carry an appropriate interest rate.Immediately after the sale,Condor Corporation distributes the cash and notes to Maria,the sole shareholder of Condor Corporation.Maria has a basis of $80,000 in the Condor stock.The installment notes have a value equal to their face amount.If Maria wishes to defer as much gain as possible on the transaction,which of the following is correct?

A)Maria recognizes a gain of $80,000 in the year of liquidation.
B)Condor Corporation recognizes no gain or loss on the distribution of the installment notes.
C)Maria recognizes a gain of $240,000 in the year of liquidation.
D)Maria recognizes a gain of $320,000 in the year of liquidation.
E)None of the above.

Question 65

The stock in Black Corporation is owned entirely by Nancy (80%)and Wanda (20%),mother and daughter.Three years ago,Nancy contributed land (basis of $200,000,fair market value of $250,000)to Black Corporation in a transaction that qualified under § 351.In the current year and pursuant to a complete liquidation of Black,the land is distributed proportionately to Nancy and Wanda.At the time of the liquidating distribution,the land had a fair market value of $100,000.What amount of loss will Black Corporation recognize on the distribution of the land?

A)$20,000.
B)$80,000.
C)$100,000.
D)$150,000.
E)None of the above.

Question 66

Canary Corporation has 1,000 shares of stock outstanding.It redeems in a qualifying stock redemption 200 shares for $200,000 at a time when it has paid-in capital of $100,000 and E & P of $800,000.What would be the charge to Canary's E & P as a result of the redemption?

A)$0.
B)$20,000.
C)$160,000.
D)$200,000.
E)None of the above.

Question 67

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 shareholder generally recognizes ordinary income equal to the fair market value of the preferred stock on the date of the stock dividend.
C)Any ordinary income recognized by the shareholder qualifies for the 15% (or 0%)maximum tax rate that applies to dividend income.
D)The issuing corporation reduces its E & P by the amount of sales proceeds.
E)None of the above.

Question 68

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 undeveloped land (basis of $230,000,fair market value of $160,000)and securities (basis of $10,000,fair market value of $90,000),while Ellie transferred equipment (basis of $175,000,fair market value of $250,000).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 $120,000 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 undeveloped land?

A)$0.
B)$40,000.
C)$70,000.
D)$120,000.
E)None of the above.

Question 69

In the current year,Dove Corporation (E & P of $1 million)distributes all of its property in a complete liquidation.Alexandra,a shareholder,receives land having a fair market value of $300,000.Dove Corporation had purchased the land as an investment three years ago for $375,000,and the land was distributed subject to a $270,000 liability.Alexandra took the land subject to the $270,000 liability.What is Alexandra's basis in the land?

A)$375,000.
B)$300,000.
C)$270,000.
D)$30,000.
E)None of the above.

Question 70

Pursuant to a complete liquidation,Woodpecker Corporation distributes the following assets to its unrelated shareholders: land held for six years as an investment (basis of $100,000,fair market value of $300,000),inventory (basis of $100,000,fair market value of $140,000),and marketable securities held for two years as an investment (basis of $200,000,fair market value of $120,000).What are the tax results to Woodpecker Corporation as a result of the liquidation?

A)Woodpecker Corporation would recognize ordinary income of $40,000 and a net capital gain of $200,000.
B)Woodpecker Corporation would recognize ordinary income of $40,000 and a net capital gain of $120,000.
C)Woodpecker Corporation would recognize ordinary income of $40,000 and a net capital loss of $80,000.
D)Woodpecker Corporation would recognize no gain or loss on the liquidation.
E)None of the above.

Question 71

The stock in Lark Corporation is owned equally by Olaf and his son Pete.In a liquidation of the corporation,Lark Corporation distributes to Olaf land that it had purchased three years ago for $550,000.The property has a fair market value on the date of distribution of $400,000.Later,Olaf sells the land for $420,000.What loss will Lark Corporation recognize with respect to the distribution of the land?

A)$0.
B)$20,000.
C)$130,000.
D)$150,000.
E)None of the above.

Question 72

Pursuant to a qualifying stock redemption,Redbird Corporation (E & P of $400,000)transfers land held for investment purposes to Bob,a 10% shareholder.On the date of the distribution,Redbird has a basis of $200,000 in the land and its fair market value is $150,000.Bob has a basis of $40,000 in the shares redeemed.With respect to the redemption:

A)Bob will recognize a gain of $110,000.
B)Bob will have $150,000 of dividend income.
C)Bob will have a $200,000 basis in the land.
D)Redbird Corporation will recognize a capital loss of $50,000.
E)None of the above.

Question 73

On April 7,2009,Crow Corporation acquired land in a transaction that qualified under § 351.The land had a basis of $480,000 to the contributing shareholder and a fair market value of $350,000.Assume that the shareholder also transferred equipment (basis of $50,000,fair market value of $200,000)in the same § 351 exchange.Crow Corporation adopted a plan of liquidation on October 6,2010.On December 8,2010,Crow Corporation distributes the land to Ali,a shareholder who owns 20% of the stock in Crow Corporation.The land's fair market value was $300,000 on the date of the distribution to Ali.Crow Corporation acquired the land to use as security for a loan it had hoped to obtain from a local bank.In negotiating with the bank for a loan,the bank required the additional capital investment as a condition of its making a loan to Crow Corporation.How much loss can Crow Corporation recognize on the distribution of the land?

A)$0.
B)$50,000.
C)$180,000.
D)$230,000.
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)A long-term capital gain of $30,000.
B)A long-term capital gain of $70,000.
C)Dividend income of $30,000.
D)Dividend income of $70,000.
E)None of the above.

Question 75

Two years ago,Emily,the sole shareholder of Tan Corporation (E & P of $600,000),received a nontaxable stock dividend of 100 shares of preferred stock (fair market value of $100,000)from Tan.As a result of the stock dividend,Emily properly allocated $30,000 of her common stock basis to the preferred stock.One year ago,Emily made a gift of the preferred stock in Tan Corporation to her son,Matt.In the current year,Matt sells one-half of the shares of preferred stock to Betty,an unrelated party,for $50,000.With respect to the sale of the preferred stock by Matt:

A)Matt will recognize ordinary income of $0.
B)Matt will recognize ordinary income of $35,000.
C)Matt will recognize ordinary income of $50,000.
D)Matt will recognize a capital gain of $35,000.
E)None of the above.

Question 76

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 $30,000 (accounting fees of $10,000,legal fees of $15,000,and brokerage fees of $5,000).The distribution was a qualifying stock redemption.How much of the $30,000 is deductible in the current year?

A)$0.
B)$5,000.
C)$15,000.
D)$30,000.
E)None of the above.

Question 77

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 in a qualifying stock redemption is equal to the distributing corporation's basis in the property,whereas the basis of property acquired in a complete liquidation is equal to its fair market value on the date of distribution.
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 complete liquidation.
E)Section 267 disallows recognition of losses between related parties in a qualifying stock redemption but not in a complete liquidation.

Question 78

Yellow Corporation transfers land (basis of $210,000,fair market value of $300,000)to Joe,a shareholder,to carry out a qualifying stock redemption.The land is distributed subject to a $320,000 liability.With respect to the redemption:

A)Yellow Corporation will recognize a gain of $20,000.
B)Yellow Corporation will recognize a gain of $90,000.
C)Yellow Corporation will recognize a gain of $110,000.
D)Yellow Corporation will not recognize a gain.
E)None of the above.

Question 79

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 value of the stock in the decedent's gross estate must exceed 40% of the value of the adjusted gross estate.
C)The redemption need not satisfy any of the § 302 qualifying stock redemption provisions.
D)A corporation recognizes gains and losses on the distribution of property in the redemption.
E)None of the above.

Question 80

Pursuant to a complete liquidation,Oriole Corporation distributes to its shareholders land with a basis of $450,000 and a fair market value of $550,000.The land is subject to a liability of $600,000.What is Oriole's recognized gain or loss on the distribution?

A)$0.
B)$100,000 gain.
C)$150,000 gain.
D)$50,000 loss.
E)None of the above.