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Exam 8: Corporate Formation, Reorganization, and Liquidation

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Question 41

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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?

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) B) and C)
F) A) and D)

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Question 42

Multiple Choice

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Which of the following statements best describes the impact of receiving boot in a section 351 transaction?

A) Boot received has no impact on the recognition of gain or loss realized in a section 351 transaction.
B) Boot received causes gain realized to be recognized, but not loss realized.
C) Boot received causes loss realized to be recognized, but not gain realized.
D) Boot received causes gain and loss realized to be recognizeD.Boot received causes gain, but not loss, realized to be recognized in an amount not to exceed the gain realized.

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

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Question 43

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Tax considerations are always the primary reason for structuring an acquisition. Nontax considerations can be more important than tax reasons.

Packard Corporation transferred its 100 percent interest to State Company as part of a complete liquidation of the company. In the exchange, Packard received land with a fair market value of $300,000. Packard's basis in the State stock was $600,000. The land had a basis to State Company of $500,000. What amount of loss does State recognize in the exchange and what is Packard's basis in the land it receives?

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

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a section 351 transaction. In all cases, the assumed liability will be treated as boot received by Jane. A liability assumed by a corporation in a section 351 transaction is only treated as boot if the liability is assumed for tax avoidance purposes.

Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger. In exchange, she received stock in Plum with a fair market value of $500,000 plus $500,000 in cash. Simone's tax basis in the Purple stock was $200,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Inc. After liquidating its remaining inventory and paying off its remaining liabilities, Amelia had the following tax accounting balance sheet. Under the terms of the agreement, Gary will receive the $100,000 cash in exchange for his interest in Amelia. Gary's tax basis in his Amelia stock is $30,000. Laura will receive the building and land in exchange for her interest in Amelia. Laura's tax basis in her Amelia stock is $60,000. What amount of gain or loss does Gary recognize in the complete liquidation?

Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?

Jasmine transferred 100 percent of her stock in Emerald Company to Jade Corporation in a Type A merger. In exchange she received stock in Jade with a fair market value of $800,000 plus $1,200,000 in cash. Jasmine's tax basis in the Emerald stock was $900,000. What amount of gain does Jasmine recognize in the exchange and what is her basis in the Jade stock she receives?

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 Michelle recognize in the complete liquidation and what is her tax basis in the building and land after the complete liquidation?

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

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?

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

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

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 the corporation's tax basis in the property received in the exchange?

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. 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. a. What amount of gain or loss does Francine realize on the transfer of the property to her corporation? b. What amount of gain or loss does Francine recognize on the transfer of the property to her corporation? c. What is Francine's basis in the stock she receives in her corporation?

Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation in exchange for stock with a fair market value of $650 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 the corporation's tax basis in the property received in the exchange?

Tristan transfers property with a tax basis of $900 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $900 and $200 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 the corporation's tax basis in the property received in the exchange?

Billie transferred her 20 percent interest to Jean Company as part of a complete liquidation of the company. In the exchange, she received land with a fair market value of $200,000. Billie's basis in the Jean stock was $100,000. The land had a basis to Jean Company of $400,000. What amount of loss does Jean recognize in the exchange and what is Billie's basis in the land she receives? Billie is not considered a related party to Jean Company.