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Exam 8: Corporate Formation, Reorganization, and Liquidation

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Question 61

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Robin transferred her 60 percent interest to Cardinal Company as part of a complete liquidation of the company. In the exchange, she received land with a fair market value of $800,000. Robin's basis in the Cardinal stock was $900,000. The land had a basis to Cardinal Company of $1,000,000. What amount of loss does Cardinal recognize in the exchange and what is Robin's basis in the land she receives? The distribution was non-pro rata to Robin, a related person.

A) $200,000 loss recognized by Cardinal and a basis in the land of $1,000,000 to Robin
B) $200,000 loss recognized by Cardinal and a basis in the land of $800,000 to Robin
C) No loss recognized by Cardinal and a basis in the land of $1,000,000 to Robin
D) No loss recognized by Cardinal and a basis in the land of $800,000 to Robin

E) None of the above
F) A) and C)

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Question 62

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Type A reorganizations involve the transfer of assets of the target corporation via a merger or consolidation.

A) True
B) False

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Question 63

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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 Pennsylvania recognize in the complete liquidation?

Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete liquidation of the company. In the exchange, Red Blossom received land with a fair market value of $535,000. The corporation's basis in the Tea Company stock was $315,000. The land had a basis to Tea Company of $617,500. What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives?

Tax considerationsshould always be the primary reason for structuring an acquisition.

Camille transfers property with a tax basis of $1,140 and a fair market value of $1,340 to a corporation in exchange for stock with a fair market value of $1,270 and $70 incash in a transaction that qualifies for deferral under section 351. Camille also incurred selling expenses of $133. What is the amount realized by Camille in the exchange?

Carlos transfers property with a tax basis of $865 and a fair market value of $1,185 to a corporation in exchange for stock with a fair market value of $975 and $71 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $139 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

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?