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Exam 19: Corporate Formation, Reorganization, and Liquidation

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Question 31

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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 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?

A) $1,200
B) $1,100
C) $1,000
D) $900

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

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Question 32

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Please answer the following questions about the tax consequences of the transaction to Ken. a) What amount of gain or loss does Ken realize on the formation of the corporation? b) What amount of gain or loss, if any, does he recognize? c) What is Ken's tax basis in the stock he receives in return for his contribution of property to the corporation?

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a) $100,000 gain
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Question 33

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Which of the following statements best describes the tax benefits that arise from the sale of section 1244 stock?

Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received by the shareholders of the target corporation in the transaction.

Sue transferred 100 percent of her stock in Oakland Company to Applegate Corporation in a Type A merger. In exchange she received stock in Applegate with a fair market value of $800,000 plus $400,000 in cash. Sue's tax basis in the Oakland stock was $1,500,000. What amount of gain or loss does Sue recognize in the exchange and what is her basis in the Applegate stock she receives?

A stock-for-stock Type B reorganization will be tax-deferred to a target corporation shareholder as long as at least 80 percent of the consideration received is in the form of stock of the acquirer.

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. $\begin{array} { l r l r } & { \text { FMV } } & & { \text { Adjusted basis } } \\\hline\text { Inventory } & \$ 30,000 & & \$ 10,000 \\\text { Building } & 130,000 & & 80,000 \\\text { Land } & \underline { 50,000 } & & \underline { 100,000 } \\\text { Total } & \$ 210,000 & & \$ \underline { \underline { 190,000 } }\end{array}$ 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. What is Francine's basis in the stock she receives in her corporation?

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?

Control as it relates to a section 351 transaction is strictly defined to be 80 percent or more of the voting power of the stock of the corporation to which property is transferred.

Which of the following statements best describes the "built-in loss" rules that apply to property transferred to a corporation under section 351?

Casey transfers property with a tax basis of $2,000 and a fair market value of $5,000 to a corporation in exchange for stock with a fair market value of $4,000 and $400 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $600 on the property transferred. Casey also incurred selling expenses of $300. What is the amount realized by Casey in the exchange?

The shareholders in the target corporation always receive a tax basis in the stock received from the acquirer equal to the stock's fair market value.

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

Please answer the following questions about the tax consequences of the transaction to Jim. a) What amount of income, gain or loss does Jim realize on the formation of the corporation? b) What amount of gain or loss, if any, does he recognize? c) What is Jim's tax basis in the stock he receives in return for his contribution of services to the corporation?

Han transferred land to his corporation in a section 351 transaction. Han had held the land for two years prior to the transfer. The corporation will tack Han's holding period for the land.

Boston, Inc. made a capital contribution of investment property to its 100 percent-owned subsidiary, Hartford Company. The investment property had a fair market value of $1,000,000 and a tax basis to Boston of $250,000. What are the tax consequences to Boston, Inc. on the contribution of the investment property to Hartford Company and what is the tax basis of the investment property to Hartford Company after the contribution to capital?

In December 2011, Jill incurred a $50,000 loss on the sale of Crown Corporation stock that she purchased in 2005. The stock satisfied all of the §1244 stock requirements at the time of issue. Jill is married to Jack and together they file a joint tax return. How much of the loss can Jack and Jill deduct in 2011, assuming they do not have capital gains in the current or prior years, and what is the character of the loss?

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

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a section 351 transaction. The assumed liability will be treated as boot received by Jane.

To meet the control test under section 351, a taxpayer transferring property to a corporation must own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock after the transfer.