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Exam 19: Corporate Formation, Reorganization, and Liquidation

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Question 31

True/False

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The definition of property as it relates to a section 351 transaction includes money.

A) True
B) False

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Question 32

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Tristan transfers property with a tax basis of $900 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $900 and $200 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

A) $1,200
B) $1,100
C) $1,000
D) $900

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

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Question 33

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Which of the following statements does not describe a requirement that must be met in a tax-deferred forward triangular merger?

Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?

Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a corporation in exchange for stock with a fair market value of $2,000 and $500 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $500 on the property transferred. What is Ashley's tax basis in the stock received in the exchange?

A taxpayer's tax basis in property always begins with its cost to the taxpayer.

Control as it relates to a section 351 transaction is strictly defined to be 80 percent or more of the voting power of the stock of the corporation to which property is transferred.

Han transferred land to his corporation in a section 351 transaction. Han had held the land for two years prior to the transfer. The corporation will tack Han's holding period for the land.

Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?

Simon transferred 100 percent of his stock in Idol Company to Bobcat Corporation in a Type A merger. In exchange he received stock in Bobcat with a fair market value of $2,000,000 plus $500,000 in cash. Simon's tax basis in the Idol stock was $1,500,000. What amount of gain does Simon recognize in the exchange and what is his basis in the Bobcat stock he receives?

Boston, Inc. made a capital contribution of investment property to its 100 percent-owned subsidiary, Hartford Company. The investment property had a fair market value of $1,000,000 and a tax basis to Boston of $250,000. What are the tax consequences to Boston, Inc. on the contribution of the investment property to Hartford Company and what is the tax basis of the investment property to Hartford Company after the contribution to capital?

Phillip incorporated his sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases. $\begin{array} { l r l r } & { \text { FMV } } & & { \text { Adjusted basis } } \\\text { Inventory } & \$ 100,000 & & \$ 50,000 \\\text { Building } & 100,000 & & 250,000 \\\text { Land } & \underline { 200,000 } & & \underline { 150,000 } \\\text { Total } & \$ \underline { \underline { 400,000 } } & & \underline { \$450,000 }\end{array}$

Which of the following statements best describes the tax results to a shareholder in a section 351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

A taxpayer always will have a tax basis in boot received in a section 351 transaction equal to its fair market value.

Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock with a fair market value of $3,000 and $2,000 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stock received in the exchange?

Francine incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases. $\begin{array} { l r l r } & { \text { FMV } } & & { \text { Adjusted basis } } \\\text { Inventory } & \$ 30,000 & & \$ 10,000 \\\text { Building } & 130,000 & & 80,000 \\\text { Land } & \underline { 50,000 } & & \underline { 100,000 } \\\text { Total } & \$ 210,000 & & \$ \underline { \underline { 190,000 } }\end{array}$ The corporation also assumed a mortgage of $60,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $150,000. What amount of gain or loss does Francine realize on the transfer of the property to her corporation?

Mandel transferred property to his new corporation in a section 351 transaction. One of the properties transferred was land with a fair market value of $200,000 and a tax basis of $250,000. The corporation will always take a tax basis in the land of $200,000 to prevent the "built-in loss" from being transferred from Mandel to the corporation.

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

Which of the following requirements do not have to be met in a section 351 transaction?

The shareholders in the target corporation always receive a tax basis in the stock received from the acquirer equal to the stock's fair market value.