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Question;485. TF;The Code treats corporate distributions that are a return froma shareholder?s investment as sales or exchanges and corporate;distributions that are a return of a;shareholder?s investment as dividends.;a.;True;b. False;486. 2;For tax purposes, all stock redemptions are treated as dividend distributions.;a.;True;b. False;487. 3;Noncorporate shareholders generally prefer a nonqualified stock redemption over;a qualifying stock redemption due to the availability of the dividends received;deduction.;a.;True;b. False;488. 4;A shareholder?s basis in property received in a stock redemption is the;property?s fair market value.;a.;True;b. False;489. 5;A shareholder?s holding period of property acquired in a stock redemption;begins on the date of the distribution.;a.;True;b. False;490. 6;Vireo Corporation redeemed shares from its sole shareholder pursuant to a;written agreement between the parties that clearly identified the transaction;as a stock redemption (and not a dividend distribution). Since the agreement is;binding under state law, the shareholder will receive sale or exchange;treatment with respect to the redemption.;a.;True;b. False;491. 7;In applying the stock attribution rules to a stock redemption, stock owned by a;shareholder who owns 65% of a corporation is deemed to be owned in full by the;corporation.;a.;True;b. False;492. 8;In a not essentially equivalent redemption [? 302(b)(1)], the meaningful reduction test is an;objective safe harbor rule that taxpayers can rely upon for sale or exchange;treatment.;a.;True;b. False;493. 9;As a result of a redemption, a shareholder?s interest (direct and indirect) in;the corporation decreased from 58% to 45%. The redemption qualifies for sale or;exchange treatment as a disproportionate redemption.;a.;True;b. False;494. 10;Puffin Corporation?s 2,000 shares outstanding are owned as follows: Paul, 800;shares, Sandra (Paul?s sister), 800 shares, and Greta (Paul?s granddaughter);400 shares. During the current year, Puffin (E & P of $1 million) redeemed;600 shares of Paul?s stock for $100,000. If Paul had acquired the 600 shares;five years ago for $30,000, he will have a long-term capital gain of $70,000;from the redemption.;a.;True;b. False;495. 11;Sally and her mother are the sole shareholders of Owl Corporation. During the current;year, Owl distributes cash in redemption of all of Sally?s stock. Sally;continues to be employed as controller for Owl after the redemption. The;distribution is a complete termination redemption resulting in sale or exchange;treatment for Sally.;a.;True;b. False;496. 12;Reginald and Roland (Reginald?s son) each own 50% of the stock of Robin;Corporation. Reginald?s stock interest is entirely redeemed by Robin;Corporation. Two years later, Reginald loans Robin Corporation $250,000. The;loan to Robin Corporation constitutes a prohibited interest for purposes of the;family attribution waiver.;a.;True;b. False;497. 13;In 2008, Floyd carried out a successful complete termination redemption of his;stock in Gray Corporation. Floyd was able to qualify the transaction as a;complete termination redemption only by use of the family attribution waiver.;In 2011, Floyd receives stock in Gray Corporation as a gift from his father.;Floyd has acquired a prohibited interest within the 10-year postredemption;period and, as a result, the 2008 redemption no longer qualifies as a complete;termination redemption.;a.;True;b. False;498. 14;For purposes of a partial liquidation, the ?not essentially equivalent to a;dividend? test is applied at the corporate level.;a.;True;b. False;499. 15;A partial liquidation cannot result in sale or exchange treatment to a;shareholder if it results in a pro rata stock redemption.;a.;True;b. False;500. 16;To qualify a partial liquidation under the termination of a business test, the;distribution must consist of the proceeds from the sale of a qualified trade or;business.;a.;True;b. False;501. 17;For a stock redemption to qualify for sale or exchange treatment under ? 303;(redemption to pay death taxes), it need not satisfy any of the ? 302;redemption provisions.;a.;True;b. False;502. 18;Betty?s adjusted gross estate is $7 million. The death taxes and funeral and;administration expenses of her estate total $800,000. Included in Betty?s gross;estate is stock in Heron Corporation, valued at $2.1 million as of the date of;her death in 2011. Betty had acquired the stock six years ago at a cost of;$410,000. If Heron Corporation redeems $800,000 of Heron stock from the estate;the transaction will qualify under ? 303 as a redemption to pay death taxes and;receive sale or exchange treatment.;a.;True;b. False;503. 19;In a redemption to pay death taxes, stock in corporations in which the decedent;held a 20% or more interest is treated as stock in a single corporation for;purposes of determining whether the value of stock owned by the decedent;exceeds 35% of the value of the decedent?s adjusted gross estate.;a.;True;b. False;504. 20;Grackle Corporation (E & P of $600,000) distributes cash of $200,000 and;land (fair market value of $400,000, basis of $250,000) to a shareholder in a;qualifying stock redemption. The land distributed is subject to a mortgage of;$460,000. Grackle will recognize a gain of $150,000 as a result of the;distribution.;a.;True;b. False;505. 21;At a time when Blackbird Corporation had E & P of $700,000 and 1,000 shares;of stock outstanding, the corporation distributed $300,000 to redeem 400 shares;of its stock. The transaction qualified as a disproportionate redemption for;the shareholder. Blackbird?s E & P is reduced by $280,000 as a result of;the distribution.;a.;True;b. False;506. 22;Swan Corporation incurred $10,000 of accounting fees and $15,000 of legal fees;in connection with the redemption of stock from its shareholders. None of the;expenditures are deductible by Swan.;a.;True;b. False;507. 23;In the current year, Donovan sells to an unrelated individual 500 shares of;preferred stock in Flamingo Corporation for $15,000. Donovan received the;preferred stock in a nontaxable stock dividend four years ago from Flamingo (E;P of $700,000). At that time, the preferred stock had a fair market value;of $45,000, and $20,000 of common stock basis was properly allocated to the;preferred stock. Donovan will recognize a $5,000 loss as a result of the sale;of the preferred stock.;a.;True;b. False;508. 24;Tammy forms White Corporation in a transaction qualifying under ? 351. In that;transaction, Tammy transferred cash and equipment in exchange for White;Corporation common (1,000 shares) and preferred (200 shares) stock. The;preferred stock is ? 306 stock for Tammy.;a.;True;b. False;509. 25;Three years ago, Darlene received preferred (? 306) stock pursuant to a;nontaxable stock dividend from Grackle Corporation. In the current year;Darlene gives the Grackle preferred stock to her sister, Nancy. The Grackle;preferred stock is not ? 306 stock with regards to Nancy.;a.;True;b. False;510. 26;For purposes of the application of ? 304 (redemptions through the use of;related corporations), a shareholder must own (direct or indirectly) at least;80% of the stock of two more corporations.;a.;True;b. False;511. 27;Abel owns all the stock of both Beige Corporation and Brown Corporation. Both;corporations have significant amounts of E & P. Abel sells some of his;stock in Beige to Brown Corporation. Abel will have dividend income as a result;of the sale of Beige stock.;a.;True;b. False;512. 28;Legal dissolution under state law is not required for a liquidation to be;complete for tax purposes.;a.;True;b. False;513. 29;One difference between the tax treatment accorded nonliquidating and;liquidating distributions is with respect to the recognition of losses by the;distributing corporation. As a general rule, a corporation recognizes losses on;liquidating distributions of depreciated property (fair market value less than;basis) but not on nonliquidating distributions of such property.;a.;True;b. False;514. 30;As a general rule, a liquidating corporation recognizes gains and losses on the;distribution of property in complete liquidation.;a.;True;b. False;515. 31;The related-party loss limitation does not apply to a distribution of property;in complete liquidation that was appreciated (fair market value greater than;basis) when it was transferred to the corporation.;a.;True;b. False;516. 32;The built-in loss limitation in a complete liquidation does not apply to losses;attributable to a decline in a property?s fair market value after its transfer;to the corporation.;a.;True;b. False;517. 33;The related-party loss limitation in a complete liquidation can apply to a;distribution or sale of property while the built-in loss limitation applies only;to distributions of property.;a.;True;b. False;518. 34;When a shareholder receives property subject to a liability pursuant to a;complete liquidation (not a parent-subsidiary liquidation), the fair market;value of the property is reduced by the amount of the liability in computing;the shareholder?s gain (or loss) on the liquidation.;a.;True;b. False;519. 35;Shareholders may defer gain, to the point of collection, on a liquidating;distribution of installment notes obtained by the corporation in the sale of;its assets.;a.;True;b. False;520. 36;Section 332 does not apply to a parent-subsidiary liquidation if the subsidiary;corporation is insolvent on the date of the liquidation.;a.;True;b. False;521. 37;If a liquidation qualifies under ? 332, any minority shareholder will recognize;gain (but not loss) equal to the difference between the fair market value of;assets received and the basis of the shareholder?s stock.;a.;True;b. False;522. 38;A subsidiary corporation is liquidated at a time when it is indebted to its;parent corporation. The subsidiary corporation distributes property to the;parent corporation in satisfaction of the indebtedness. If the liquidation is;governed by ? 332, neither the subsidiary nor the parent recognize gain or loss;on the transfer of property in satisfaction of indebtedness.;a.;True;b. False;523. 39;Brown Corporation purchased 85% of the stock of Green Corporation five years;ago for $850,000. In the current year, Brown Corporation liquidates Green;Corporation and acquires assets with a basis to Green Corporation of $700,000;(fair market value of $1.1 million). Brown Corporation will have a basis in the;assets of $700,000, the same as Green?s basis in the assets.;a.;True;b. False;524. 40;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 a recognized loss of $150,000 ($1 million basis in Warbler;stock ? $850,000 carryover basis in assets).;a.;True;b. False;525. 41;A subsidiary is liquidated pursuant to ? 332. The parent has held 100% of the;stock in the subsidiary for the past ten years. The subsidiary has E & P of;$600,000 at the time of liquidation. The subsidiary?s E & P disappears as a;result of the liquidation.;a.;True;b. False;526. 42;For purposes of the ? 338 election, a corporation must acquire, in a taxable;transaction, at least 80% of the stock (voting power and value) of another;corporation within an 12-month period.;a.;True;b. False;527. 43;A parent corporation must make the ? 338 election by the fifteenth day of the;third month following the close of the tax year in which a qualified stock;purchase occurs.;a.;True;b. False;528. 44;If a parent corporation makes a ? 338 election, the subsidiary recognizes gains;and losses as result of a deemed sale of its assets.;a.;True;b. False;529. 45;One advantage of acquiring a corporation via an asset purchase instead of a;stock purchase is that an asset purchase avoids the transfer of the acquired;corporation?s liabilities.;a.;True;b. False


Paper#59221 | Written in 18-Jul-2015

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