Exam 6: Corporate Liquidating Distributions

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A)
B)
C)
D)

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A) a $500,000 short-term capital loss.
B) a $500,000 long-term capital loss.
C) a $500,000 ordinary loss.
D) a $500,000 bad debt deduction.

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A) $6,000 long-term capital loss.
B) $6,000 short-term capital loss.
C) $6,000 ordinary loss.
D) none of the above

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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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A complete liquidation is defined by Reg.Sec.1.3322(c)as one or a series of distributions made by a liquidating corporation that completely cancels or redeems all of its stock in accordance with a plan of liquidation.A partial liquidation is defined by Sec.302(e)as a distribution that (1)is not essentially equivalent to a dividend (when determined at the corporate level rather than at the shareholder level),and (2)is pursuant to a plan of liquidation and occurs within the tax year in which the plan is adopted or within the succeeding tax year.Generally,a partial liquidation involves the corporation either ceasing to conduct a trade or business (while still continuing to conduct a second trade or business)or contracting its business activities.In either case,the corporation remains in existence after the partially liquidating distribution. A complete liquidation is taxed under Code Secs.331 and 336.A partial liquidation is taxed under Code Secs.302(b)and 311.The complete liquidation is taxed to the extent the shareholder recognizes a gain or loss,which is computed by comparing the FMV of the property received to the adjusted basis of the stock redeemed.When the shareholder receives a series of liquidating distributions,the distribution is taxed once the FMV of the property received exceeds the adjusted basis of the stock held.All basis is recovered first before the shareholder recognizes any gain.A partial liquidation results in exchange treatment for a noncorporate shareholder under Sec.302(b)(4).A corporate shareholder is eligible for exchange treatment only if the distribution qualifies as an exchange under the stock redemption rules of Secs.302(b)(1)-(b)(3).The shareholder recognizes a loss only when he or she receives the final liquidating distribution.

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No.Section 332 liquidations are an excep...

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Parent Corporation recognizes ...

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A) 0)
B) $200,000.
C) $500,000.
D) cannot be determined from the facts presented

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A) $0 gain.
B) $10,000 capital loss.
C) $30,000 capital loss.
D) $70,000 capital gain.

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True

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The liquidation will not qualify for non...

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New York has a recognized gain...

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A) A corporation must file an information return with the Internal Revenue Service within thirty days of adopting a resolution to liquidate.
B) The adoption of a formal plan of liquidation can provide additional benefits under tax laws to the corporation and its shareholders.
C) A plan of liquidation must be produced in writing in order to be accepted by the Internal Revenue Service.
D) The adoption of a plan of liquidation permits a parent corporation a three-year time period to carry out the complete liquidation of its subsidiary.

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C

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a)Land: ($105,000 net FMV + $20,000 liab...

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A) An individual taxpayer,who is assessed an additional payment of money based on stock ownership in a corporation whose stock is redeemed in a complete liquidation,may recognize a capital loss to the extent of the additional assessment.
B) The open transaction doctrine defers the shareholder's gain or loss from a liquidation until the assets can be valued by sale or collection.
C) The open transaction doctrine as applied to complete corporate liquidations refers to the numerous planning alternatives available when liquidating a corporation.
D) The IRS asserts that the open transaction doctrine should be used only in extraordinary circumstances.

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A) Liquidating distributions made to minority shareholders in the tax-free liquidation of a controlled subsidiary corporation are treated by the liquidating corporation in the same way as nonliquidating distributions.
B) Sec.337(a) provides that the liquidating corporation recognizes no gain or loss on the distribution of property to the 80% distributee in a complete Sec.332 liquidation.
C) The depreciation recapture provisions in Secs.1245 and 1250 override the Sec.337(a) nonrecognition rule if a controlled subsidiary corporation is liquidated into its parent corporation.
D) A corporation that distributes the stock of a subsidiary may elect to treat the distribution as a sale of the subsidiary's assets.

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Since the parent recognizes no gain or l...

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