Question 1

Which of the following statements best describes the application of the continuity of enterprise principle to a Type A tax-deferred reorganization?

Accepted Answer

The continuity of business enterprise principle requires that the target corporation's business or a significant portion of its business assets continue to be operated by the acquiring corporation after the reorganization. This principle ensures that the reorganization is not merely a means to distribute assets but continues the target's business enterprise.

Question 2

Which of the following statements best describes the impact of receiving boot in a §351 transaction?

Accepted Answer

Boot received in a §351 transaction causes the shareholder to recognize gain to the extent of the lesser of the gain realized or the boot received, but it does not allow for the recognition of a loss.

Question 3

Which of the following classes of stock is not allowed to be used in a §351 transaction?

Accepted Answer

All of these classes of stock can be used in a §351 transaction. Section 351 allows for the transfer of property to a corporation by one or more persons in exchange for stock in that corporation, and it does not exclude any specific class of stock (voting common, voting preferred, or nonvoting preferred) from being used in such transactions.

Question 4

Which of the following statements best describes a §338 transaction?

Accepted Answer

A §338 transaction is an election made by the buyer to treat a stock acquisition as an asset acquisition. This allows the buyer to receive certain tax benefits as if they had acquired the assets of the target company, rather than the stock. These tax benefits include stepped-up basis in assets and increased depreciation deductions.

Question 5

Which of the following principles does not need to be satisfied for an acquisition to be a tax-deferred reorganization?

Accepted Answer

Continuity of purpose is not a requirement for an acquisition to be a tax-deferred reorganization. The other three principles - continuity of interest, business purpose, and continuity of business enterprise - must be satisfied.

Question 6

Which of the following statements best describes the tax results to a shareholder in a §351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

Accepted Answer

The answer of Which of the following statements best describes...

Question 7

Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $750 and $50 in cash in a transaction that qualifies for deferral under §351.The corporation assumed a liability of $100 on the property transferred.What is Rachelle's tax basis in the stock received in the exchange?

Accepted Answer

The answer of Rachelle transfers property with a tax basis...

Question 8

Which of the following statements best describes the tax consequences of a §338 election?

Accepted Answer

A §338 election allows the buyer to treat a stock purchase as an asset purchase for tax purposes, resulting in a stepped-up basis in the assets acquired. The acquired corporation recognizes gain or loss on the deemed sale of its assets.

Question 9

Which of the following statements best describes the continuity of interest principle as it applies to a tax-deferred acquisition?

Accepted Answer

The continuity of interest principle in a tax-deferred acquisition requires that shareholders in the aggregate receive a significant portion of the consideration in the form of equity of the acquiring company. While the specific percentage can vary by jurisdiction and specific tax rules, the principle is that a substantial part of the consideration must be in the form of stock to ensure that the shareholders of the acquired company maintain a continuing interest in the combined entity, thus allowing the transaction to qualify as a tax-deferred reorganization. Option B correctly captures the essence of this principle without specifying an exact percentage, which can vary.

Question 10

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing sole shareholder?

Accepted Answer

When a sole shareholder contributes capital to a corporation, the shareholder does not recognize a gain or loss on the transfer, and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred. This is because the contribution is generally made in exchange for stock in the corporation, and the shareholder's basis in the stock is the same as their basis in the property contributed.

Question 11

Which of the following statements best describes the tax benefits that arise from the sale of §1244 stock?

Accepted Answer

The answer of Which of the following statements best describes...

Question 12

Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?

Accepted Answer

Option B is incorrect because buyers generally prefer to buy assets because they can take a tax basis in the assets acquired equal to the assets' fair market value. Option A is correct as buyers generally prefer to buy assets for the basis step-up. Option C is correct as sellers may prefer to sell assets to take advantage of tax-deferred reorganization. Option D is correct as sellers may prefer to sell stock to recognize capital gains taxed at preferential rates.

Question 13

Amy transfers property with a tax basis of $900 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $450 in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $150 on the property transferred.What is Amy's tax basis in the stock received in the exchange?

Accepted Answer

In a Section 351 transaction, the shareholder's tax basis in the stock received is equal to the tax basis of the property transferred, decreased by any liabilities assumed by the corporation. 
Thus, Amy's tax basis in the stock received is $900 (tax basis of property transferred) - $150 (liability assumed by corporation) = $750.

Question 14

Jamie transferred 100 percent of her stock in Fox Company to Otter Corporation in a Type A merger.In exchange,she received stock in Otter with a fair market value of $400,000 plus $600,000 in cash.Jamie's tax basis in the Fox stock was $600,000.What amount of gain does Jamie recognize in the exchange and what is her basis in the Otter stock she receives?

Accepted Answer

Jamie recognizes a gain of $400,000, which is the amount of cash received ($600,000), because the transaction is partially a sale due to the receipt of cash. The basis in the Otter stock she receives is equal to the fair market value of the stock received, which is $400,000.

Question 15

Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger.In exchange,she received stock in Plum with a fair market value of $500,000 plus $500,000 in cash.Simone's tax basis in the Purple stock was $200,000.What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

Accepted Answer

The answer of Simone transferred 100 percent of her stock...

Question 16

Jasmine transferred 100 percent of her stock in Woodward Company to Jefferson Corporation in a Type A merger.In exchange,she received stock in Jefferson with a fair market value of $600,000 plus $400,000 in cash.Jasmine's tax basis in the Woodward stock was $1,500,000.What amount of loss does Jasmine recognize in the exchange and what is her basis in the Jefferson stock she receives?

Accepted Answer

In a Type A merger, no loss is recognized on the exchange of stock for stock plus cash ("boot"). The basis in the new stock is the original basis minus the cash received plus any gain recognized, which in this case is $1,500,000 - $400,000 = $1,100,000. Since no gain is recognized and the cash received does not trigger gain recognition in this context, the correct answer is no loss recognized and a basis in the Jefferson stock of $1,100,000.

Question 17

Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation in exchange for stock with a fair market value of $600.In addition,Sami received stock with a fair market value of $50 in exchange for services she provided to the corporation in the incorporation process.Which of the following statements best describes the tax result to Sami because of the exchanges?

Accepted Answer

The answer of Sami transferred property with a fair market...

Question 18

Which of the following statements best describes the "built-in loss" rules that apply to property transferred to a corporation under §351?

Accepted Answer

The "built-in loss" rules under §351 prevent a shareholder from taking a tax loss on the transfer of property to a corporation. If the aggregate basis of all property transferred to a corporation under §351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate fair market value of the property. This ensures that the corporation does not receive a tax benefit from the built-in loss of the transferred property.

Question 19

Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $750 and $50 in cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $100 on the property transferred.What is the corporation's tax basis in the property received in the exchange?

Accepted Answer

When property is transferred to a corporation in exchange for stock under section 351, the corporation takes a carryover tax basis in the property received. The tax basis of the property transferred is $800, but the corporation assumes a liability of $100, reducing the property's net value to $700. The fair market value of the stock received ($750) is greater than the net value of the property transferred ($700), so the entire $750 fair market value of the stock is allocated to the property transferred. Therefore, the corporation's tax basis in the property received is $750.

Question 20

Which of the following statements best describes the concept of control as it applies to a §351 transaction?

Accepted Answer

The answer of Which of the following statements best describes...

Quiz 19: Corporate Formation,reorganization,and Liquidation

Which of the following statements best describes the application of the continuity of enterprise principle to a Type A tax-deferred reorganization?

Which of the following statements best describes the impact of receiving boot in a §351 transaction?

Which of the following classes of stock is not allowed to be used in a §351 transaction?

Which of the following statements best describes a §338 transaction?

Which of the following principles does not need to be satisfied for an acquisition to be a tax-deferred reorganization?

Which of the following statements best describes the tax results to a shareholder in a §351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

Which of the following statements best describes the tax consequences of a §338 election?

Which of the following statements best describes the continuity of interest principle as it applies to a tax-deferred acquisition?

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing sole shareholder?

Which of the following statements best describes the tax benefits that arise from the sale of §1244 stock?

Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?

Which of the following statements best describes the "built-in loss" rules that apply to property transferred to a corporation under §351?

Which of the following statements best describes the concept of control as it applies to a §351 transaction?