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

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Question 21

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Pursuant to a complete liquidation, Oriole Corporation distributes to its shareholders land with a basis of $350,000 and a fair market value of $800,000.The land is subject to a liability of $920,000.What is Oriole's recognized gain or loss on the distribution?

A) $0.
B) $120,000 loss.
C) $120,000 gain.
D) $450,000 gain.
E) None of the above.

F) All of the above
G) C) and D)

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Question 22

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Noncorporate shareholders may elect out of § 368 and recognize losses when property subject to a liability is distributed to them in a corporate reorganization.

A) True
B) False

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Question 23

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The stock in Toucan Corporation is held equally by two brothers. Four years ago, the shareholders transfer property (basis of $200,000, fair market value of $220,000) to Toucan Corporation as a contribution to capital. In the current year and pursuant to a complete liquidation of Toucan, the property is distributed proportionately to the brothers. At the time of the distribution, the property had a fair market value of $40,000. What amount of loss will Toucan Corporation recognize on the distribution of the property?

Pursuant to a liquidation, Coral Corporation distributes to Lucinda, a shareholder, land (basis of $90,000, fair market value of $200,000). The land is subject to a $75,000 liability. Lucinda will have a basis of $125,000 in the land.

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:

All of the following statements are true about corporate reorganization except:

Which of the following statements is correct with respect to the § 338 election?

In 1916, the Supreme Court decided that corporate reorganizations were substantially continuations of the prior entities and thus should not be subject to taxation.

The amount of gain recognized by a shareholder in a corporate reorganization is based on the shareholder's proportionate share of E & P.

Legal dissolution under state law is required for a liquidation to be complete for tax purposes.

Scarlet Corporation, the parent corporation, has a basis of $600,000 in the stock of Brown Corporation, a subsidiary in which it owns 90% of all classes of stock. Scarlet purchased the stock in Brown Corporation 10 years ago. In the current year, Scarlet Corporation liquidates Brown Corporation and acquires assets worth $800,000 and with a tax basis to Brown Corporation of $950,000. What basis will Scarlet Corporation have in the assets acquired from Brown Corporation?

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.

During the current year, Ecru Corporation is liquidated and distributes its only asset, land, to Kena, the sole shareholder. On the date of distribution, the land has a basis of $370,000, a fair market value of $550,000, and is subject to a liability of $450,000. Kena, who takes the land subject to the liability, has a basis of $50,000 in the Ecru stock. With respect to the distribution of the land, which of the following statements is correct?

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 the shares in exchange for 6,000 shares of Yea Corporation stock and a $20,000 car not wanted by Yea.This transaction meets the requirements of § 368. Which of the following statements is true with regard to this transaction?

Discuss the role of letter rulings in corporate reorganizations.

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.

Mars Corporation merges into Jupiter Corporation by exchanging all of its assets for 300,000 shares of Jupiter stock valued at $2 per share and $100,000 cash.Wanda, the sole shareholder of Mars, surrenders her Mars stock (basis $900,000) and receives all of the Jupiter stock transferred to Mars plus the $100,000. How does Wanda treat this transaction on her tax return?

The determination of whether a shareholder's gain qualifies for stock redemption treatment in a corporate reorganization is based on the reduction in the percentage of the stock held in the target corporation when compared to the percentage held in the acquiring corporation.

Explain whether shareholders are exempted from gain/loss recognition in nontaxable corporate reorganization or the gain/loss recognition is merely postponed.If postponed, what is the vehicle for ensuring the postponed gain/loss will be recognized in the future?

During the current year, Goldfinch Corporation purchased 100% of the stock of Dove Corporation and made a qualified election under § 338.Which of the following statements is incorrect with respect to the § 338 election?