Question 1

A corporation is required to file Form 966 within 30 days after the adoption of a plan of liquidation.

Accepted Answer

This statement is true. A corporation must file Form 966 within 30 days after the adoption of a plan of complete liquidation or dissolution. This form provides the IRS with information about the corporation's intent to terminate its business and close its tax account.

Question 2

Parent Corporation, which operates an electric utility, created a 100%-owned corporation, Subsidiary, that built and managed an office building. Assume the two corporations have filed separate tax returns for a number of years. The utility occupied two floors of the office building, and Subsidiary offered the other ten floors for lease. Only 25% of the total rental space was leased because of the high crime rate in the area surrounding the building. Rental income was insufficient to cover the mortgage payments, and Subsidiary filed for bankruptcy because of the poor prospects. Subsidiary's assets were taken over by the mortgage lender. Parent lost its entire $500,000 investment. At the time Subsidiary was liquidated, another $100,000 of debts remained unpaid for the general creditors, which included a $35,000 account payable to Parent. What tax issues should Parent and Subsidiary consider with respect to the bankruptcy and liquidation of Subsidiary?

Accepted Answer

The answer of Parent Corporation, which operates an electric utility,...

Question 3

What is the IRS's position regarding whether a liquidating transaction will be considered open or closed?

Accepted Answer

The answer of What is the IRS's position regarding whether...

Question 4

If a liquidating subsidiary corporation primarily has loss property to distribute, the parent corporation should
A)follow Sec. 332 rules.
B)avoid Sec. 332 rules.
C)follow Sec. 332 rules but avoid Sec. 337.
D)none of the above.

Accepted Answer

The answer of If a liquidating subsidiary corporation primarily has...

Question 5

A plan of liquidation must be reduced to writing in order to be accepted by the Internal Revenue Service.

Accepted Answer

The answer of A plan of liquidation must be reduced...

Question 6

Santa Fe Corporation adopts a plan of liquidation late in the current tax year in which it expects to earn $100,000 profits from its operating activities. Santa Fe's operating activities are discontinued before the end of the year. Pursuant to the liquidation, it distributes assets, which result in the recognition of $30,000 of ordinary losses. Santa Fe also distributes assets that have appreciated in value, which results in the recognition of $30,000 of ordinary gains. Generally, Santa Fe Corporation should distribute

Accepted Answer

The answer of Santa Fe Corporation adopts a plan of...

Question 7

New York Corporation adopts a plan of liquidation on March 15 and shortly thereafter sells a parcel of land on which it realizes a $15,000 gain (excluding the effects of a $2,000 sales commission). New York pays its legal counsel $500 to draft the plan of liquidation. All of New York's remaining properties are distributed to its shareholders on September 15. What are the tax consequences to New York on the land sale?

Accepted Answer

The answer of New York Corporation adopts a plan of...

Question 8

Why should a corporation that is 100% owned by another corporation be treated differently when it liquidates than a corporation that is 100% owned by an individual?

Accepted Answer

The answer of Why should a corporation that is 100%...

Question 9

Parent Corporation owns 70% of Sam Corporation's single class of stock. This year, Parent Corporation purchases for cash the remaining 30% of Sam Corporation's stock from four individual investors pursuant to a tender offer. A plan of liquidation is approved by Sam Corporation's shareholders during the last month of this year, and Sam Corporation's assets are distributed by year-end to Parent Corporation in exchange for all of Sam's outstanding stock. Parent Corporation should

Accepted Answer

Since Parent Corporation owned 70% of Sam Corporation's stock prior to the tender offer, the redemption of the remaining 30% does not result in any significant change in ownership. Therefore, Parent Corporation should not recognize any gains or losses on the redemption. Additionally, because the distribution of assets is made in exchange for all of Sam's outstanding stock, it should qualify as a complete liquidation under section 332 of the Internal Revenue Code, which allows the parent corporation to recognize any losses on the liquidation as ordinary losses, rather than as capital losses. However, in this scenario, there were no gains or losses to recognize.

Question 10

Identify which of the following statements is false.

Accepted Answer

A plan of liquidation does not need to be in writing to be accepted by the IRS; it can be oral as long as it is clearly evidenced.

Question 11

For the following set of facts, what are the tax consequences to Parent Corporation, Subsidiary Corporation, and a Subsidiary Corporation shareholder, Melisa? Parent Corporation owns 80% of Subsidiary Corporation's stock. Melisa owns the remaining 20% of the Subsidiary stock. Parent and Melisa's stock have adjusted bases of $100,000 and $25,000, respectively, for their Subsidiary stock. Subsidiary distributes land having a $125,000 adjusted basis and a $200,000 FMV to Parent and $50,000 in cash to Melisa.

Accepted Answer

The answer of For the following set of facts, what...

Question 12

When a liquidating corporation pays off an unsecured debt obligation,

Accepted Answer

When a liquidating corporation pays off an unsecured debt obligation using cash, the corporation recognizes no gain or loss because the payment is treated as a return of capital to the creditor. However, if the corporation uses appreciated property to pay off the debt obligation, it will recognize a gain equal to the difference between the property's fair market value and its adjusted basis.

Question 13

Parent Corporation owns all of Subsidiary Corporation's stock. In addition, Parent Corporation owns $100,000 (face amount and basis)of Subsidiary Corporation's bonds. When Subsidiary Corporation is completely liquidated, it distributes property with a $70,000 adjusted basis and a $100,000 FMV to Parent Corporation in redemption of the Subsidiary Corporation bonds. Following the liquidation, Parent Corporation will have a basis in the Subsidiary Corporation property received for the bonds of

Accepted Answer

When Subsidiary Corporation distributes property to redeem the bonds, Parent Corporation will have a basis in the distributed property equal to the adjusted basis of the bonds, which is $70,000. Therefore, the correct answer is B.

Question 14

A Sec. 332 liquidation requires a complete statement be filed with the distributee's tax return

Accepted Answer

A complete statement is required to be filed with the distributee's tax return when a liquidating distribution is received in a Sec. 332 liquidation. This statement should include information such as the distributing corporation's EIN, the date of the distribution, the amount of the distribution, and the basis of any stock received.

Question 15

Identify which of the following statements is true.

Accepted Answer

The statement in option B is true. According to Sec. 332 of the Internal Revenue Code, a subsidiary corporation can transfer property to its parent corporation in satisfaction of an indebtedness it owes to the parent corporation as part of its complete liquidation, and no gain or loss will be recognized by the subsidiary corporation. The nonrecognition rules do not apply to the parent corporation in this situation, as stated in option A. Option C is also false, as the nonrecognition rules apply only to the subsidiary corporation, not to third-party creditors. Option D is not correct, as option B is true.

Question 16

Penny, a cash-basis taxpayer, reported a $15,000 long-term capital gain on the exchange of her Midwest Corporation stock when the corporation liquidated in 2016. Midwest subsequently lost a lawsuit and Penny paid an additional $3,000 in 2018 as her part of the settlement. What are the tax consequences to Penny in 2018 of the $3,000 additional payment she made?

Accepted Answer

The answer of Penny, a cash-basis taxpayer, reported a $15,000...

Question 17

What are the tax consequences of a cash-method shareholder, subsequent to a liquidation, if obligated to pay a contingent liability of the liquidated corporation?

Accepted Answer

The answer of What are the tax consequences of a...

Question 18

A liquidation must be reported to the Internal Revenue Service on Form 966

Accepted Answer

The answer of A liquidation must be reported to the...

Question 19

Homewood Corporation adopts a plan of liquidation on June 15 and shortly thereafter sells a parcel of land on which it realizes a $50,000 gain (excluding the effects of a $5,000 sales commission). Homewood pays its legal counsel $2,000 to draft the plan of liquidation. The accountant fees for the liquidation are $1,000, which are also paid during the year. What is Homewood Corporation's realized gain on the sale of land and deductible liquidation expenses?

Accepted Answer

The answer of Homewood Corporation adopts a plan of liquidation...

Question 20

Jack has a basis of $36,000 in his 1,000 shares of Acorn Corporation stock (a capital asset). The stock was acquired three years ago. He receives the following distributions as part of a plan of liquidation of Acorn Corporation:  What are the amount and character of the gain or loss that Jack will recognize during 2017? During 2018?

Accepted Answer

The answer of Jack has a basis of $36,000 in...

Quiz 6: Corporate Liquidating Distributions