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Exam 19: Corporate Formation, Reorganization, and Liquidation

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Question 1

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Inez transfers property with a tax basis of $200 and a fair market value of $300 to a corporation in exchange for stock with a fair market value of $250 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

A) $150
B) $200
C) $250
D) $300

E) B) and D)
F) B) and C)

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B

Question 2

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Rich and Rita propose to have their corporation, Big Blue, acquire another corporation, Green Company, in a stock-for-stock Type B acquisition. The sole shareholder of Green, Mark Dee, will receive $500,000 of Big Blue voting stock in the transaction. Mark's tax basis in his Green stock is $100,000. What is Mark's tax basis in the Big Blue stock he receives in the exchange and what is Big Blue's basis in the Green stock it receives in return?

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Mark's basis in the Big Blue s...

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Question 3

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Simon transferred 100 percent of his stock in Idol Company to Bobcat Corporation in a Type A merger. In exchange he received stock in Bobcat with a fair market value of $2,000,000 plus $500,000 in cash. Simon's tax basis in the Idol stock was $1,500,000. What amount of gain does Simon recognize in the exchange and what is his basis in the Bobcat stock he receives?

Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $350 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is the amount realized by Roberta in the exchange?

Which of the following statements best describes the tax law approach to recognizing gain or loss realized in an exchange?

Gain and loss realized in a section 351 transaction will be recognized if the taxpayer receives boot in the exchange.

Assuming the gain or loss realized in Problem 1 is deferred under §351, what is Keegan's basis in the stock he receives in his corporation?

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?

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

Gain or loss is always recognized when realized for tax purposes.

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?

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

The definition of property as it relates to a section 351 transaction includes money.

Phillip incorporated his sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases. $\begin{array} { l r r } & { \text { FMV } } & { \text { Adjusted basis } } \\\hline\text { Inventory } & \$ 100,000 & \$ 50,000 \\\text { Building } & 100,000 & 250,000 \\\text { Land } & \underline { 200,000 } & \underline { 150,000 } \\\text { Total } & \$ \underline { \underline { 400,000 } } & \$ \underline { 450,000 }\end{array}$

April transferred 100 percent of her stock in June Company to March Corporation in a taxable merger. In exchange she received stock in March with a fair market value of $400,000 plus $1,200,000 in cash. April's tax basis in the June stock was $2,000,000. What amount of loss does April recognize in the exchange and what is her basis in the March stock she receives?

Francine incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases. $\begin{array} { l r l r } & { \text { FMV } } & & { \text { Adjusted basis } } \\\hline\text { Inventory } & \$ 30,000 & & \$ 10,000 \\\text { Building } & 130,000 & & 80,000 \\\text { Land } & \underline { 50,000 } & & \underline { 100,000 } \\\text { Total } & \$ 210,000 & & \$ \underline { \underline { 190,000 } }\end{array}$ The corporation also assumed a mortgage of $60,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $150,000. What amount of gain or loss does Francine realize on the transfer of the property to her corporation?

A liquidation of a corporation always is a taxable event to the shareholders of the liquidated corporation.

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

Jalen transferred his 10 percent interest to Wolverine Company as part of a complete liquidation of the company. In the exchange, he received land with a fair market value of $100,000. Jalen's basis in the Wolverine stock was $50,000. The land had a basis to Wolverine Company of $80,000. What amount of gain does Jalen recognize in the exchange and what is his basis in the land he receives?

The requirements for tax deferral in a forward triangular merger and a reverse triangular merger are the same.