Question 1

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

Accepted Answer

A)   Liabilities assumed by a corporation on a section 351 transfer are always treated as boot.
B)   Liabilities assumed by a corporation on a section 351 transfer are never treated as boot.
C)   Liabilities assumed by a corporation on a section 351 transfer are treated as boot if the total liabilities assumed exceed the total basis of the assets transferred.
D)   Liabilities assumed by a corporation on a section 351 transfer are treated as boot if there is no business purpose for the assumption of the liabilities by the corporation.E) A) and B)
F) C) and D)

Question 2

Keegan 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.
  The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Keegan.
What amount of gain or loss does Keegan realize on the transfer of the property to his corporation?

Accepted Answer

Gain reali...

Question 3

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?

Accepted Answer

A)   $500
B)   $400
C)   $350
D)   $250E) A) and B)
F) A) and C)

Question 4

Which of the following statements does not describe a requirement that must be met in a tax-deferred reverse triangular merger?

Accepted Answer

A)   The 40 percent continuity of interest test must be met with respect to the stock transferred from the acquisition corporation to the target corporation shareholders.
B)   The target must hold substantially all of the target corporation's properties and the properties of the acquisition subsidiary after the merger.
C)   The continuity of business enterprise test must be met with respect to the target corporation.
D)   The target corporation shareholders must receive voting stock in the acquiring corporation.E) None of the above
F) A) and B)

Question 5

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?

Accepted Answer

$400,000 capital loss. Her basis in the ...

Question 6

Which of the following requirements do not have to be met in a section 351 transaction?

Accepted Answer

A)   Each transferor of property must receive stock equal to at least 80 percent of the fair market value of the property transferred.
B)   In the aggregate, the transferors of property to the corporation must collectively control the corporation immediately after the transfers.
C)   Only property transferred to a corporation is eligible for deferral.
D)   All transfers of property to a corporation must be made simultaneously to qualify for deferral.E) None of the above
F) A) and D)

Question 7

Which statement best describes the concept of realization as it applies to gain or loss?

Accepted Answer

A)   Realization is the recording of gain or loss on a tax return.
B)   Realization is the result of an exchange of property rights in a transaction.
C)   Realization is the excess of amount realized over adjusted basis.
D)   Realization is the excess of adjusted basis over amount realized.E) A) and B)
F) A) and C)

Question 8

Which of the following statements best describes the recognition of loss on property transferred to shareholders in complete liquidation of a corporation?

Accepted Answer

A)   The liquidated corporation always recognizes loss on the distribution of property in complete liquidation of the corporation.
B)   The liquidated corporation never recognizes loss on the distribution of property in complete liquidation of the corporation.
C)   The liquidated corporation recognizes loss on the distribution of property in complete liquidation of the corporation if the property is distributed to individuals who are not related parties to the corporation.
D)   The liquidated corporation recognizes loss on the distribution of property in complete liquidation of the corporation only if the property is distributed to individuals who are related parties to the corporation.E) C) and D)
F) All of the above

Question 9

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

A)   $500,000 loss recognized and a basis in Jefferson stock of $600,000.
B)   $500,000 loss recognized and a basis in Jefferson stock of $1,100,000.
C)   No loss recognized and a basis in Jefferson stock of $1,500,000.
D)   No loss recognized and a basis in Jefferson stock of $1,100,000.E) B) and C)
F) None of the above

Question 10

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 Rachelle's tax basis in the stock received in the exchange?

Accepted Answer

A)   $900
B)   $850
C)   $750
D)   $700E) B) and C)
F) All of the above

Question 11

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

A)   Sami will recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
B)   Sami will recognize $50 of compensation income, but she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
C)   Sami will not recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
D)   Sami will not recognize $50 of compensation income, and she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.E) A) and B)
F) C) and D)

Question 12

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?

Accepted Answer

A)   $50,000 gain recognized and a basis in the land of $100,000.
B)   $50,000 gain recognized and a basis in the land of $80,000.
C)   No gain recognized and a basis in the land of $80,000.
D)   No gain recognized and a basis in the land of $50,000.E) A) and C)
F) A) and B)

Question 13

Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet.
  Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $100,000.
What amount of gain or loss does Mike recognize in the complete liquidation?

Accepted Answer

Mike recognizes gain of $150,000 on the ...

Question 14

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

Accepted Answer

A)   Voting common stock.
B)   Voting preferred stock.
C)   Nonvoting preferred stock.
D)   All of these classes of stock can be used in a section 351 transaction.E) A) and C)
F) None of the above

Question 15

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

Accepted Answer

A)   Control is defined as the ownership of 80 percent or more of a corporation's voting stock.
B)   Control is defined as the ownership of 80 percent or more of the fair market value of a corporation's stock.
C)   Control is defined as the ownership of 80 percent or more of a corporation's voting stock and 80 percent or more of the fair market value of a corporation's stock.
D)   Control is defined as the ownership of 80 percent or more of a corporation's voting stock and 80 percent or more of the total number of shares of each class of nonvoting stock.E) All of the above
F) A) and B)

Question 16

Which of the following amounts is not included in the computation of a property's adjusted basis in an exchange?

Accepted Answer

A)   Selling expenses incurred by the buyer.
B)   Acquisition cost of the buyer.
C)   Capital improvements made to the property by the buyer.
D)   Depreciation of the property by the buyer.E) B) and C)
F) All of the above

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

A)   The shareholder recognizes a gain or loss on the transfer and the corporation's basis in the property transferred equals its fair market value.
B)   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.
C)   The shareholder recognizes 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.
D)   The shareholder does not recognize a gain or loss on the transfer and the corporation's basis in the property transferred equals zero.E) A) and B)
F) All of the above

Question 19

Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a corporation in exchange for stock with a fair market value of $2,000 and $500 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $500 on the property transferred. What is Ashley's tax basis in the stock received in the exchange?

Accepted Answer

A)   $5,000
B)   $4,000
C)   $3,000
D)   $2,000E) None of the above
F) All of the above

Question 20

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

Accepted Answer

A)   Continuity of interest.
B)   Continuity of purpose.
C)   Business purpose.
D)   Continuity of business enterprise.E) None of the above
F) A) and C)

Exam 19: Corporate Formation, Reorganization, and Liquidation

Which of the following amounts is not included in the computation of a property's adjusted basis in an exchange?

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

Correct Answer
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Correct Answer
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Gain reali...
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Correct Answer
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Which statement best describes the concept of realization as it applies to gain or loss?

Correct Answer
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Correct Answer
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$400,000 capital loss. Her basis in the ...
View Answer

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

Correct Answer
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Correct Answer
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Mike recognizes gain of $150,000 on the ...
View Answer

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

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

Correct Answer
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Correct Answer
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Which of the following statements does not describe a requirement that must be met in a tax-deferred reverse triangular merger?

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

Correct Answer
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Correct Answer
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Which of the following statements best describes the recognition of loss on property transferred to shareholders in complete liquidation of a corporation?

Correct Answer
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Which of the following requirements do not have to be met in a section 351 transaction?

Correct Answer
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Correct Answer
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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?

Correct Answer
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Correct Answer
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Exam 19: Corporate Formation, Reorganization, and Liquidation

Which of the following amounts is not included in the computation of a property's adjusted basis in an exchange?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedGain reali...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which statement best describes the concept of realization as it applies to gain or loss?

Correct AnswerverifiedShow Answer

Correct Answerverified$400,000 capital loss. Her basis in the ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedMike recognizes gain of $150,000 on the ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements does not describe a requirement that must be met in a tax-deferred reverse triangular merger?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements best describes the recognition of loss on property transferred to shareholders in complete liquidation of a corporation?

Correct AnswerverifiedShow Answer

Which of the following requirements do not have to be met in a section 351 transaction?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Gain reali...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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$400,000 capital loss. Her basis in the ...
View Answer

Correct Answer
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Correct Answer
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Mike recognizes gain of $150,000 on the ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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