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

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Question 21

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Pursuant to a complete liquidation,Oriole Corporation distributes to its shareholders land with a basis of $350,000 and a fair market value of $800,000.The land is subject to a liability of $920,000.What is Oriole's recognized gain or loss on the distribution?

A) $0.
B) $120,000 loss.
C) $450,000 gain.
D) $570,000 gain.
E) None of the above.

F) C) and E)
G) B) and D)

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Question 22

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Legal dissolution under state law is required for a liquidation to be complete for tax purposes.

A) True
B) False

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Question 23

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The stock in Crimson Corporation is owned by Angel and Melawi,who are unrelated.Angel owns 60% and Melawi owns 40% of the stock.All of Crimson Corporation's assets were acquired by purchase.The following assets are to be distributed in complete liquidation of Crimson Corporation: Adjusted Fair Market Basis Value Cash $300,000 $300,000 Inventory 110,000 100,000 Equipment 180,000 200,000 Land 460,000 400,000 ​ a.What gain or loss,if any,would Crimson Corporation recognize if it distributes the cash,inventory,and equipment to Angel and the land to Melawi? b.What gain or loss,if any,would Crimson Corporation recognize if it distributes the equipment and land to Angel and the cash and inventory to Melawi?

In the current year,Dove Corporation (E & P of $1 million) distributes all of its property in a complete liquidation.Alexandra,a shareholder,receives land having a fair market value of $200,000.Dove Corporation had purchased the land as an investment three years ago for $125,000,and the land was distributed subject to a $100,000 liability.Alexandra took the land subject to the $100,000 liability.What is Alexandra's basis in the land?

Dipper Corporation is acquiring Bulbul Corporation by exchanging 220,000 shares of Dipper stock and $80,000 cash for all of Bulbul's assets (valued at $500,000),liabilities ($200,000),and accumulated earnings and profits ($120,000).Betty purchased 40% of Bulbul five years ago for $60,000,and Keith purchased the remaining 60% for $90,000.What is the amount and character of the gain or loss that Betty and Keith recognize (if any),assuming that the exchange qualifies as a § 368 reorganization? What is the basis in their new Dipper stock?

After a plan of complete liquidation has been adopted,Condor Corporation sells its only asset,land (basis of $220,000) ,to Eduardo (an unrelated party) for $300,000.Under the terms of the sale,Condor Corporation receives cash of $50,000 and Eduardo's notes for the balance of $250,000.The notes are payable over the next five years ($50,000 per year) and carry an appropriate interest rate.Immediately after the sale,Condor Corporation distributes the cash and notes to Maria,the sole shareholder of Condor Corporation.Maria has a basis of $30,000 in the Condor stock.The installment notes have a value equal to their face amount.If Maria wishes to defer as much gain as possible on the transaction,which of the following is correct?

During the current year,Ecru Corporation is liquidated and distributes its only asset,land,to Kena,the sole shareholder.On the date of distribution,the land has a basis of $250,000,a fair market value of $650,000,and is subject to a liability of $500,000.Kena,who takes the land subject to the liability,has a basis of $120,000 in the Ecru stock.With respect to the distribution of the land,which of the following statements is correct?

Which of the following statements is true?

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.

What are the tax consequences of a § 332 liquidation to the parent corporation,subsidiary corporation,and minority shareholder?

Section 332 can apply to a parent-subsidiary liquidation even if the subsidiary corporation is insolvent on the date of the liquidation.

If a parent corporation makes a § 338 election,the subsidiary corporation must be liquidated.

After a complete liquidation has been adopted,Wren Corporation sells its only asset,unimproved land (basis of $200,000) held as an investment.The land is sold to Seth (an unrelated party) for $500,000.Under the terms of the sale,Wren Corporation receives cash of $50,000 and Seth's notes for the balance of $450,000.The notes are payable over the succeeding 5 years ($90,000 per year) and carry an appropriate rate of interest.Immediately after the sale,Wren Corporation distributes the cash and notes to Adam,the sole shareholder of Wren.Adam has an adjusted basis of $80,000 in the Wren stock.The installment notes have a value equal to their face amount of $450,000. a.How will Wren Corporation be taxed on the distribution? b.How will Adam be taxed on his receipt of the cash and notes?

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

In corporate reorganizations,if an acquiring corporation using property other than stock as consideration,it may recognize gains but not losses on the transaction.

For corporate restructurings,meeting the § 368 reorganization "Type" requirements is all that needs to be considered when planning the structure of the transaction.

Sparrow Corporation purchased 90% of the stock of Warbler Corporation eight years ago for $1 million.In the current year,Sparrow liquidates Warbler and acquires assets with a basis to Warbler of $850,000 (fair market value of $1.2 million).Sparrow will have a basis in the assets of $850,000 (Warbler's basis in the assets),and no recognized gain or loss.

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 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?

If a parent corporation makes a § 338 election,the subsidiary corporation is treated as a new corporation as of the day following the qualified stock purchase date.