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

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Question 41

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

A) Taxable amounts for shareholders are classified as a dividend or capital gain.
B) Reorganizations receive treatment similar to corporate formations under § 351.
C) The transfers of stock to and from shareholders qualify for like-kind exchange treatment.
D) The value of the stock received by the shareholder less the gain not recognized (postponed) will equal the shareholder's basis in the stock received.
E) All of the above statements are true.

F) A) and D)
G) A) and B)

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Question 42

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The stock of Tan Corporation (E & P of $1.5 million) is owned as follows: 90% by Egret Corporation (basis of $900,000),and 10% by Zoe (basis of $70,000).Both shareholders acquired their shares in Tan more than six years ago.In the current year,Tan Corporation liquidates and distributes land (fair market value of $1.1 million,basis of $1.3 million) and equipment (fair market value of $700,000,basis of $410,000) to Egret Corporation,and securities (fair market value of $200,000,basis of $260,000) to Zoe.What are the tax consequences of these distributions to Egret,to Tan,and to Zoe?

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The liquidating distribution to Egret is...

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Question 43

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Discuss the role of letter rulings in corporate reorganizations.

On March 15,2016,Blue Corporation purchased 10% of the Gold Corporation stock outstanding.Blue Corporation purchased an additional 40% of the stock in Gold on October 24,2016,and an additional 25% on April 4,2017.On July 25,2017,Blue Corporation purchased the remaining 25% of Gold Corporation stock outstanding. a.For purposes of the § 338 election, on what date does a qualified stock purchase occur? b.What is the due date for making the § 338 election?

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

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.

Pursuant to a complete liquidation,Lilac Corporation distributes the following assets to its unrelated shareholders: land held for three years as an investment (basis of $300,000,fair market value of $600,000) ,inventory (basis of $100,000,fair market value of $80,000) ,and marketable securities held for four years as an investment (basis of $200,000,fair market value of $240,000) .What are the tax consequences to Lilac Corporation as a result of the liquidation?

Target shareholders recognize gain or loss when they receive assets (boot) as well as stock in the acquiring corporation in a transaction meeting the § 368 requirements.

The gains shareholders recognize as a part of a corporate reorganization may be treated a dividend to the extent of the corporation's E & P.

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?

The basis for the acquiring corporation in the target's assets is increased by any gain recognized by the target.

Obtaining a positive letter ruling from the IRS can ensure the desired tax treatment for parties contemplating a corporate reorganization.