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Exam 14: Corporate Nonliquidating and Liquidating Distributions

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Question 51

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A liquidation of a corporation always is a taxable event to the shareholders of the liquidating corporation.

A) True
B) False

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Question 52

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A liquidating corporation always recognizes loss realized in a complete liquidation where none of the shareholders is a corporation.

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B) False

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Question 53

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Sweetwater Corporation declared a stock dividend to all common stock shareholders of record on December 31, year 1.Shareholders will receive one share of Sweetwater common stock for each five shares of common stock they already own.Pierre Dorgan owns 500 shares of Sweetwater common stock, with a tax basis of $150 per share.The fair market value of the Sweetwater common stock was $90 per share on December 31.What is Pierre's income tax basis in his new and existing common stock in Sweetwater, assuming the distribution is nontaxable?

Beltway Company is owned equally by George, his brother Thomas, and a partnership owned 50 percent by George and his father, Abe.Each of the three shareholders holds 100 shares in the company.Under the §318 stock attribution rules, how many shares of Beltway stock is George deemed to own?

Jalen transferred his 10 percent interest to Wolverine Company as part of a complete liquidation of the company.In the exchange he received land with a fair market value of $100,000.Jalen's basis in the Wolverine stock was $50,000.The land had a basis to Wolverine Company of $80,000.What amount of gain does Jalen recognize in the exchange and what is his basis in the land he receives?

Which of the following statements best describes current earnings and profits?

Lansing Company is owned equally by Jennifer, her husband, Dan, and DeWitt Corporation, which is owned 50 percent by Jennifer and her sister Jane.Each of the three shareholders holds 100 shares in the company.Under the §318 stock attribution rules, how many shares of Lansing stock is Jennifer deemed to own?

Loon Inc.reported taxable income of $600,000 in year 1 and paid federal income taxes of $126,000.Not included in the company's computation of taxable income is tax-exempt interest income of $30,000, disallowed meals expense of $15,000, and disallowed expenses related to the tax-exempt income of $4,000.Loon deducted depreciation of $200,000 on its tax return.Under the alternative (E&P)depreciation method, the deduction would have been $80,000.Compute the company's current E&P for year 1.

El Toro Corporation declared a common stock distribution to all shareholders of record on June 30, year 1.Shareholders will receive one share of El Toro stock for each two shares of stock they already own.Raoul owns 300 shares of El Toro stock, with a tax basis of $60 per share.The fair market value of the El Toro stock was $100 per share on June 30, year 1.What are the tax consequences of the stock distribution to Raoul?

Which of the following statements best describes the role of current and accumulated earnings and profits in determining if at least a portion of a distribution is a dividend?

Corona Company is owned equally by Maria, her sister Carlita, her mother, Gabriella, and her grandmother Olivia, each of whom hold 100 shares in the company.Under the family attribution rules, how many shares of Corona stock is Maria deemed to own?

Sara owns 80 percent of the stock of Lea Corporation.Unrelated individuals own the remaining 20 percent.For a stock redemption of Sara's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Lea stock must Sara own after the redemption?

Lansing Company is owned equally by Jennifer, her husband, Dan, and DeWitt Corporation, which is owned 50 percent by Jennifer and her sister Jane.Each of the three shareholders holds 100 shares in the company.Under the §318 stock attribution rules, how many shares of Lansing stock is DeWitt Corporation deemed to own?

Viking Corporation is owned equally by Sven and his wife, Olga, each of whom hold 100 shares in the company.Viking redeemed 75 shares of Sven's stock in the company on December 31, year 1.Viking paid Sven $2,000 per share.His income tax basis in each share is $1,000.Viking has total E&P (current plus accumulated) of $500,000.What are the tax consequences to Sven as a result of the stock redemption?

Which of the following statements best describes the recognition of loss on property transferred to shareholders in complete liquidation of a corporation?

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder.Evergreen's tax basis in the land is $50,000.Evergreen will report a gain of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative.

Aztec Company reports current E&P of $200,000 in year 1 and accumulated E&P at the beginning of the year of negative $100,000.Aztec distributed $300,000 to its sole shareholder on January 1, year 1.How much of the distribution is treated as a dividend in year 1?

Packard Corporation reported taxable income of $1,000,000 in year 3 and paid federal income taxes of $210,000.Included in the year 3 taxable income computation was a dividends received deduction of $5,000, a net capital loss carryover from year 2 of $10,000, and gain of $50,000 from an installment sale that took place in year 1.The corporation's current earnings and profits for year 3 would be:

Otter Corporation reported taxable income of $400,000 before the distribution described below.During the year, the company made a distribution of land to its sole shareholder, Emmet Jugg.The land's fair market value was $50,000 and its tax and E&P basis to Otter was $30,000.Emmet assumed a mortgage attached to the land of $10,000.Compute Otter's current E&P for year 1.

Inca Company reports current E&P of negative $100,000 in year 1 and accumulated E&P at the beginning of the year of $200,000.Inca distributed $300,000 to its sole shareholder on January 1, year 1.How much of the distribution is treated as a dividend in year 1?