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Paris Corporation has E&P of $200,000.Paris owns all of Slider Corporation's stock,which is worth $80,000.The stock has been held for five years.Paris distributes all of the Slider stock and $20,000 cash to a 50% shareholder in exchange for all of the shareholder's 100 shares of Paris stock.The exchange qualifies as a Sec.355 split-off transaction.The 50% shareholder's basis in the Paris stock surrendered is $90,000.What is the amount of the gain that the 50% shareholder must recognize?

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blured image The recognized gain is taxed as a capit...

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The Supreme Court has held that literal compliance with the statutory requirements for a reorganization transaction is not enough for a transaction to receive tax-free treatment.The courts have placed four primary restrictions on reorganization transactions.What are they?

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•Continuity of the investor's proprietar...

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What are the two steps of a Sec.338 deemed liquidation election?

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First,the target corporation's sharehold...

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Identify which of the following statements is true.


A) The control requirement for Sec.355 differs from the control requirement under Sec.351.
B) Aspect Corporation transfers assets to newly created Expert Corporation in exchange for all of Expert's stock.Shortly after the transfer,Aspect exchanges one-half of the Expert stock that it receives for land.The individuals transferring the land have never been Aspect shareholders.This transaction qualifies as a divisive Type D reorganization and is tax-free to all parties.
C) Common stock can be exchanged for preferred stock in the same corporation as a Type E reorganization.
D) All of the above are false.

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Taxable acquisition transactions can either be a purchase of assets or a purchase of stock.

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Identify which of the following statements is true.


A) Acquisition of the stock of a target corporation in a taxable acquisition transaction is reflected in an increased basis for the target corporation's assets on its books.
B) Acquisition of 100% of the stock of a target corporation in a taxable transaction followed by a tax-free liquidation of the target corporation permits a step-up in the basis of the target corporation's assets to their FMV.
C) Usually when 100% of the stock of a target corporation is purchased by an acquiring corporation,the basis of the assets of the target corporation reflects the purchase price of the target stock.
D) All of the above are false.

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Martha owns Gator Corporation stock having an adjusted basis of $21,000.As part of a tax-free reorganization involving Gator and Baker Corporations,Martha exchanges her Gator stock for $18,000 of Baker stock and $6,000 (face amount and FMV)of Baker securities.What is Martha's basis in the Baker stock?

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Identify which of the following statements is false.


A) Taxable acquisition transactions can either be a purchase of assets or a purchase of stock.
B) The tax-free reorganization rules are an example of the wherewithal to pay concept.
C) A taxable acquisition of a target corporation's assets results in the nonrecognition of gain or loss on the disposition of each individual asset.
D) Sales of depreciable assets as part of a taxable acquisition result in depreciation recapture.

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Gulf Corporation wants to acquire all of Beamer Corporation's assets and liabilities in a Type C reorganization.The FMV of Beamer's assets is $500,000.Beamer's liabilities are $70,000.How much cash can Gulf Corporation use to pay for Beamer's assets without violating the Type C reorganization requirements?

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0.20 × $500,000 = $100,000 noncash consi...

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Buddy owns 100 of the outstanding shares of Binder Corporation stock.Buddy's basis in his Binder Corporation stock is $100,000.Binder Corporation is merged with Clipper Corporation in a tax-free reorganization.Buddy receives 50 shares of Clipper stock worth $150,000 and $150,000 cash.The remaining 100 shares of Binder stock were owned by Bruce who received the same consideration for his Binder stock.Binder and Clipper have E&P balances of $250,000 and $500,000,respectively.Buddy and Bruce each own 25% of Clipper Corporation's 200 shares of stock after the reorganization.Which of the following is correct?


A) Buddy recognizes $200,000 as dividend income.
B) Buddy recognizes $200,000 as a capital gain.
C) Buddy recognizes $150,000 as dividend income.
D) Buddy recognizes $150,000 as a capital gain.

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Shareholders in Boxer Corporation exchange all of their nonvoting Class B common stock for additional shares of Boxer's Class A common stock.Which of the following statements is correct?


A) If boot is added to the exchange,the entire gain realized on the exchange is recognized in full.
B) The exchange is a Type F reorganization,assuming all requirements are met.
C) The exchange is tax-free even if no plan of reorganization has been created.
D) The basis of the Class A common stock received is equal to its FMV.

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Identify which of the following statements is true.


A) When the acquiring corporation makes the Sec.338 election,the target corporation is treated in many respects as a new corporation.
B) A Sec.338 election requires the adoption of the old target corporation's tax year by the new target corporation.
C) Tax attributes of the target corporation are not lost when a Sec.338 deemed liquidation election is made.
D) All of the above are false.

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Identify which of the following statements is true.


A) A plan of reorganization must be a written document.
B) Advance rulings are required for all reorganizations.
C) The IRS will issue an advance ruling on any proposed tax-free reorganization.
D) All of the above are false.

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If the FMV of the stock received in a Type E reorganization does not equal the FMV of the stock surrendered,the difference may be


A) a contribution to capital.
B) compensation for services.
C) a dividend.
D) All of the above are correct.

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Brown Corporation has assets with a $650,000 basis and an $800,000 FMV.The assets are subject to $250,000 in liabilities.Clark Corporation acquires all of Brown's assets and liabilities for $600,000 in cash.Brown Corporation then liquidates.What is Clark Corporation's basis in the acquired assets?

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In a taxable asset acquisition,the purch...

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Identify which of the following statements is true.


A) Per IRS Treasury Regulations,to qualify as a Type A reorganization ,at least 40% of the total consideration used must be acquiring corporation stock.
B) A Type A reorganization has the advantage of avoiding the acquisition of unknown and contingent liabilities.
C) A merger usually involves the approval of all of the shareholders of both corporations.
D) All of the above are false.

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When gain is realized by a target corporation from disposing of its assets in a tax-free reorganization,the gain is


A) recognized if boot is received and immediately distributed to its shareholders.
B) recognized without exception.
C) recognized if boot is received and retained.
D) never recognized.

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Identify which of the following statements is true.


A) The acquired corporation in a Type C reorganization may retain its corporation charter.
B) Alpha Corporation acquires 100% of the assets of Beta Corporation in exchange for $75,000 of Alpha stock and $25,000 in cash.Beta is subsequently liquidated.This exchange qualifies as a Type C reorganization.
C) Alpha Corporation acquires 100% of the assets of Beta Corporation in exchange for $75,000 of Alpha stock and the assumption of $25,000 of Beta liabilities.Beta is subsequently liquidated.This exchange does not qualify as a Type C reorganization.
D) All of the above are false.

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Which one of the following is not a corporate reorganization as defined in the Internal Revenue Code?


A) recapitalization
B) mere change in identity
C) merger
D) stock redemption

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Type A reorganizations include mergers and consolidations.

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