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True or False 1. Similar to like-kind exchange...

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True or False 1. Similar to like-kind exchanges, the receipt of ?boot? under ? 351 can cause gain to be recognized. 2. Tina incorporates her sole proprietorship with assets having a fair market value of $100,000 and an adjusted basis of $110,000. Even though ? 351 applies, Tina may recognize her realized loss of $10,000. 3. The definition of property for purposes of ? 351 includes unrealized receivables transferred by a cash basis taxpayer. 4. A secret process and patentable inventory both constitute ?property? under ? 351. Consequently, neither gain nor loss is recognized on the transfer of such ?property? to a controlled corporation. 5. Since services are not considered property under ? 351, a taxpayer must report as income the fair market value of stock received for such services. 6. The receipt of nonqualified preferred stock in exchange for the transfer of appreciated property to a controlled corporation results in recognition of gain to the transferor. 7. The use of ? 351 is not limited to the initial formation of a corporation, and it can apply to later transfers as well. 8. In determining whether ? 357(c) applies, assess whether the liabilities involved exceed the bases of all assets a shareholder transfers to the corporation. 9. When a taxpayer transfers property subject to a mortgage to a controlled corporation in an exchange qualifying under ? 351, the transferor shareholder?s basis in stock received in the transferee corporation is increased by the amount of the mortgage on the property. 10. To ease a liquidity problem, all of the shareholders of Osprey Corporation contribute additional cash to its capital. Osprey has no tax consequences from the contribution. 11. A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation?s E & P and any excess over the basis in the stock investment. 12. Cash distributions received from a corporation with a positive balance in accumulated E & P at the beginning of the year will always be taxed as dividend income. 13. Any distribution in excess of E & P is treated as a tax-free recovery of capital by shareholders. 14. When a corporation makes an installment sale, for E & P purposes the realized gain is recognized as payments are received. 15. A corporation borrows money to purchase State of Wisconsin bonds. The interest on the loan has no effect on either taxable income or current E & P. 16. Federal income tax paid in the current year must be subtracted from taxable income to determine E & P. . 17. The amount of dividend income recognized by a shareholder from a property distribution is always reduced by the amount of liabilities assumed by the shareholder. 18. A constructive dividend must satisfy the legal requirements of a dividend as set forth by applicable state law. 19. The rules used to determine the taxability of stock dividends also apply to distributions of stock rights. 20. In applying the stock attribution rules to a stock redemption, stock owned by a partnership is deemed to be owned in full by a partner of the partnership. 21. A liquidation can occur for tax purposes even though the corporation has retained some assets to pay remaining debts and preserve legal status. 22. As a general rule, a liquidating corporation recognizes gains and losses on the distribution of property in complete liquidation. 23. In a complete liquidation (not a parent-subsidiary liquidation), a shareholder typically recognizes dividend income equal to his or her share (i.e., stock ownership percentage) of the liquidating corporation?s E & P. 24. Section 332 cannot apply to a parent-subsidiary liquidation if the subsidiary corporation is insolvent on the date of the liquidation. 25. 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 a business credit carryover of $30,000 at the time of liquidation. The parent does not acquire the business credit carryover. 26. If a parent corporation makes a ? 338 election, the subsidiary corporation must be liquidated. 27. United States tax policy tries to encourage business development. 28. For a corporate restructuring to qualify as a tax-free reorganization, the transaction must comply with the step transaction doctrine. 29. A corporate reorganization in the form of an exchange of stock does not qualify as a like-kind exchange. 30. Debt security holders receive similar treatment to shareholders in a corporate reorganization, as long as the face value of the debt relinquished is equal to the debt received. 31. Unlike a subchapter C corporation, a partnership is subject to only one level of taxation and can often liquidate in a tax-deferred manner. 32. Section 721 provides that no gain or loss is recognized on contribution of property to a partnership in exchange for an interest in the partnership. An exception might apply if the taxpayer receives a cash distribution from the partnership soon after the property contribution. 33. Jim and Nancy formed an equal partnership on June 1 of the current year. Jim contributed $10,000 cash and land with a basis of $8,000 and a fair market value of $6,000. Nancy contributed equipment with a basis of $14,000 and a value of $16,000. Nancy?s tax basis in her interest is $14,000; Jim?s tax basis is $18,000. 34. The XYZ Partnership, a calendar year taxpayer, was formed on April 1 of the current year. It incurred $23,000 of legal fees on formation. XYZ may deduct $5,000 and amortize the remaining $18,000 over 180 months, for $900 in the current year. 35. PaulCo, DavidCo, and Ralph form a partnership with cash contributions of $80,000, $50,000 and $30,000, respectively, and agree to share profits and losses in the ratio of their original cash contributions. PaulCo uses a January 31 fiscal year-end, while DavidCo and Ralph use a November 30 and December 31 fiscal year-end, respectively. Since PaulCo is a majority partner, this partnership will use a January 31 year-end. 36. Meagan purchased her partnership interest from Lisa on the first day of the current year for $30,000 cash. She received a $15,000 cash distribution from the partnership during the year, and her share of partnership income is $12,000. If her share of partnership liabilities on the last day of the partnership year is $10,000, her outside basis for her partnership interest at the end of the year is $27,000. 37. Bill?s basis in his 20% interest in the BMW Partnership was $10,000 on the first day of the current tax year. The partnership reported ?book? (GAAP) income of $60,000 (net of a deduction for a guaranteed payment made to Bill of $40,000). There were no other differences between book and tax income. Bill?s ending basis in his partnership interest is $22,000, and he will report income items from the partnership totaling $52,000. 38. Loss will be recognized on any distribution in which cash, unrealized receivables, and/or appreciated inventory are the only items distributed. 39. Terry received a proportionate share of partnership inventory in complete liquidation of her partnership interest. If Terry holds the distributed property as a capital asset for six years and sells it for a gain, the gain is taxed as a long-term capital gain. 40. A limited liability company generally provides limited liability for those owners that are not active in the management of the LLC but requires owner-managers of the LLC to have unlimited personal liability for LLC debts. 41. S corporations are treated as partnerships under state laws. 42. Liabilities affect the owner?s basis differently in an S corporation versus a partnership. 43. An S corporation cannot incur a tax liability at the corporation level. 44. NOL carryovers for C years can be used in an S corporation year. 45. An S election is made on Form 2550. 46. An S election made before becoming a corporation is valid the next 22-month tax year. 47. All tax preference items flow through the S corporation, to be included in the shareholders? AMT calculations. 48. In certain circumstances, an S shareholder?s basis in her S stock can be reduced below zero. 49. Any excess of losses or deductions over both stock and debt basis is lost forever. 50. Unreasonable compensation traditionally has been a problem for S corporations.

 

Paper#8398 | Written in 18-Jul-2015

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