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Exam 20: Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

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Question 31

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The built-in loss limitation in a complete liquidation does not apply to losses attributable to a decline in a property's fair market value after its transfer to the corporation.

A) True
B) False

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Question 32

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Corporate reorganizations can meet the requirements to qualify as like-kind exchanges if there is no boot involved.

A) True
B) False

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Question 33

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Corporate shareholders would prefer to have a gain on a reorganization treated as a dividend rather than as a capital gain,because of the dividends received deduction.

A parent corporation must make the § 338 election by the fifteenth day of the third month following the close of the tax year in which a qualified stock purchase occurs.

The stock of Brown Corporation (E & P of $680,000) is owned as follows: 80% by Orange Corporation (basis of $620,000) ,and 20% by Susanna (basis of $155,000) .Both shareholders purchased their shares in Brown five years ago.In the current year,Brown Corporation liquidates and distributes land (fair market value of $800,000,basis of $970,000) to Orange Corporation,and securities (fair market value of $200,000,basis of $160,000) to Susanna.Which of the following statements is incorrect with respect to the tax consequences resulting from these distributions?

To ensure the desired tax treatment,parties contemplating a corporate reorganization should apply for a Regulation from the Treasury.

Brown Corporation purchased 85% of the stock of Green Corporation five years ago for $850,000.In the current year,Brown Corporation liquidates Green Corporation and acquires assets with a basis to Green Corporation of $700,000 (fair market value of $1.1 million).Brown Corporation will have a basis in the assets of $700,000,the same as Green's basis in the assets.

Korat Corporation and Snow Corporation enter into an acquisitive "Type D" reorganization.Xin currently holds a 20-year,$10,000 Snow bond paying 4% interest.There are 8 years until the bond matures.In exchange for his Snow bond,Xin receives an 8 year $16,000 Korat bond paying 2.5% interest.Xin thinks this is fair because he will still receive $400 of interest each year and both bonds mature on the same date.How does Xin treat this transaction on his tax return?

Mary and Jane,unrelated taxpayers,own Gray Corporation's stock equally.One year before the complete liquidation of Gray,Mary transfers land (basis of $420,000,fair market value of $350,000)to Gray Corporation as a contribution to capital.Assume that Mary also contributed other property in the same transaction having a basis of $20,000 and fair market value of $95,000.In liquidation,Gray distributes the land to Jane.At the time of the liquidation,the land is worth $290,000.

Which of the following statements is true concerning all types of tax-free corporate reorganizations?

A subsidiary corporation is liquidated at a time when it is indebted to its parent corporation.The subsidiary corporation distributes property to the parent corporation in satisfaction of the indebtedness.If the liquidation is governed by § 332,neither the subsidiary nor the parent recognize gain or loss on the transfer of property in satisfaction of indebtedness.

The stock in Camel Corporation is owned by Albert and Tomoko,who are unrelated.Albert owns 30% and Tomoko owns 70% of the stock in Camel Corporation.All of Camel Corporation's assets were acquired by purchase.The following assets are to be distributed in complete liquidation of Camel Corporation:

The gain recognized by a shareholder in a corporate reorganization is the difference between the realized gain and the boot received.

The related-party loss limitation in a complete liquidation can apply to a distribution or sale of property while the built-in loss limitation applies only to distributions of property.

The stock of Cardinal Corporation is held as follows: 90% by Blue Jay Corporation (basis of $500,000) and 10% by Samuel (basis of $70,000) .Cardinal Corporation is liquidated on October 20,2011,pursuant to a plan adopted on January 7,2011.Pursuant to the liquidation,Cardinal Corporation distributed Asset A (basis of $450,000,fair market value of $720,000) to Blue Jay,and Asset B (basis of $45,000,fair market value of $80,000) to Samuel.No election is made under § 338.With respect to the liquidation of Cardinal:

The text discusses four different limitations on loss recognition by liquidating corporations.Provide a brief description of each of these loss limitations.

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 shareholder bought 2,000 shares of Zee Corporation for $90,000 several years ago.When the stock is valued at $200,000,Zee redeems these shares in exchange for 6,000 shares of Yea Corporation stock.This transaction meets the requirements of § 368.Which of the following statements is true with regard to this transaction?

Three years ago,Loon Corporation purchased 100% of the stock of Pelican Corporation for $950,000.Currently,Pelican Corporation has assets with a basis of $1.1 million and a fair market value of $1.3 million.If Loon liquidates Pelican,what basis will Loon have in the assets it acquires from Pelican Corporation?

The related-party loss limitation does not apply to a distribution of property in complete liquidation that was appreciated (fair market value greater than basis)when it was transferred to the corporation.