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Exam 6: Corporate Liquidating Distributions

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Question 21

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Under a plan of complete liquidation, Coast Corporation distributes land with a $300,000 adjusted basis and a $400,000 FMV to William, a 25% shareholder. William has a $200,000 basis in his Coast stock. The land is inventory in the hands of Coast Corporation. Coast Corporation must recognize

A) no gain.
B) $100,000 of ordinary income.
C) $100,000 of long-term capital gain.
D) $200,000 of ordinary income.

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Question 22

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Identify which of the following statements is true.

A) A parent corporation cannot liquidate a subsidiary corporation (having but a single class of stock) and avoid recognizing its realized gain unless the parent corporation owns at least 80% of the subsidiary's stock.
B) The liquidation of a subsidiary corporation must be completed within one tax year to receive nonrecognition treatment.
C) The provisions permitting a tax-free liquidation of a subsidiary corporation apply to both corporate and noncorporate shareholders of the subsidiary.
D) All of the above are false.

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Question 23

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Barbara owns 100 shares of Bond Corporation stock with a basis of $40,000. Barbara receives two liquidating distributions, including $16,000 paid last year and $20,000 paid in the current year. An additional distribution of an undetermined amount is expected next year. On last year's tax return, Barbara can recognize a loss of

Identify which of the following statements is false.

How is the gain/loss calculated if a shareholder has acquired stock at different times and at varying prices?

Carly owns 25% of Base Corporation's single class of stock and Premier Corporation owns the remaining 75%. Carly's basis in the Base stock is $200,000 and Premier Corporation's basis in the Base stock is $600,000. Carly receives property with a $175,000 adjusted basis and a $250,000 FMV and Premier Corporation receives property with a $600,000 adjusted basis and a $750,000 FMV in complete liquidation of Base Corporation. All of Base's cash is used to pay its liabilities. Which of following statements is correct concerning the tax effects of the liquidation?

Hope Corporation was liquidated four years ago. Teresa reported a $40,000 long-term capital gain due to the liquidation on her individual tax return. This year, Teresa pays $6,000 as part of the settlement of a lawsuit against Hope. Due to the $6,000 payment, Teresa recognizes a

Bluebird Corporation owns and operates busses and has decided to liquidate its operations. Victor, who owns 80% of the company's stock, will receive all of the busses, repair parts inventory, and all tools and equipment. He plans to start a bus company in another town. Penny, who owns 20% of the stock, wants nothing to do with the new bus business and will receive a cash distribution. Bluebird will incur about $20,000 of expenses in connection with the liquidation. What tax issues should Victor, Penny, and Bluebird consider with respect to the liquidation?

Why should a corporation that is 100% owned by another corporation be treated differently when it liquidates than a corporation that is 100% owned by an individual?

Identify which of the following statements is true.

What basis do both the parent and minority shareholders take in the assets received in a Sec. 332 liquidation?

The general rule for tax attributes of liquidating corporations is

Liquidation and dissolution have the same legal meaning.

Penny, a cash-basis taxpayer, reported a $15,000 long-term capital gain on the exchange of her Midwest Corporation stock when the corporation liquidated in 2012. Midwest subsequently lost a lawsuit and Penny paid an additional $3,000 in 2014 as her part of the settlement. What are the tax consequences to Penny in 2014 of the $3,000 additional payment she made?

What are the differences, if any, in the tax rules applying to distributions made to a parent corporation and a minority shareholder when a controlled corporation liquidates?

Prime Corporation liquidates its 85%-owned subsidiary Bass Corporation under the provisions of Secs. 332 and 337. Bass Corporation distributes land to its minority shareholder, John, who owns a 15% interest. The property received by John has a $55,000 FMV. The land was used in the Bass Corporation's business and has a $65,000 adjusted basis and is subject to a $10,000 liability, which is assumed by John. John's basis in his stock is $25,000. What gain or loss will John and Bass Corporation recognize on the distribution of the land?

What event determines when a cash or accrual method of accounting taxpayer reports a liquidating distribution?

During 2013, Track Corporation distributes property to Cindy as part of a complete liquidation. Property included in the distribution is $30,000 in cash, land with a $40,000 adjusted basis and a $60,000 FMV, and a copyright without an ascertainable FMV and having a zero basis. The first payment to Cindy of $8,000 for use of the copyrighted property occurs in 2014. Cindy has a basis in the Track stock of $95,000 immediately preceding the liquidation. The minimum amount of gain that Cindy must recognize is a

Identify which of the following statements is true.

A subsidiary recognizes no gain or loss on a distribution to a parent corporation owning more the majority of the subsidiary's stock in a complete liquidation.