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Packard Corporation transferred its 100 percent interest to State Company as part of a complete liquidation of the company. In the exchange, Packard received land with a fair market value of $300,000. Packard's basis in the State stock was $600,000. The land had a basis to State Company of $500,000. What amount of loss does State recognize in the exchange and what is Packard's basis in the land it receives?


A) $200,000 loss recognized by State and a basis in the land of $300,000 to Packard
B) $200,000 loss recognized by State and a basis in the land of $500,000 to Packard
C) No loss recognized by State and a basis in the land of $300,000 to Packard
D) No loss recognized by State and a basis in the land of $500,000 to Packard

E) B) and C)
F) None of the above

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Zhao 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. Zhao 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. The corporation also assumed a mortgage of $50,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $330,000. The transaction met the requirements to be tax-deferred under §351. a. What amount of gain or loss does Zhao realize on the transfer of the property to her corporation? b. What amount of gain or loss does Zhao recognize on the transfer of the property to her corporation? c. What is the corporation's adjusted basis in each of the assets received in the exchange? The corporation also assumed a mortgage of $50,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $330,000. The transaction met the requirements to be tax-deferred under §351. a. What amount of gain or loss does Zhao realize on the transfer of the property to her corporation? b. What amount of gain or loss does Zhao recognize on the transfer of the property to her corporation? c. What is the corporation's adjusted basis in each of the assets received in the exchange?

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a. $70,000 gain
b. Zhao does not recogni...

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

A) True
B) False

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Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $350 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is the amount realized by Roberta in the exchange?


A) $500
B) $400
C) $350
D) $250

E) B) and D)
F) A) and B)

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Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is Roy's tax basis in the stock received in the exchange?


A) $800
B) $750
C) $700
D) $500

E) A) and D)
F) None of the above

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Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation in exchange for stock with a fair market value of $600. In addition, Sami received stock with a fair market value of $50 in exchange for services she provided to the corporation in the incorporation process. Which of the following statements best describes the tax result to Sami because of the exchanges?


A) Sami will recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
B) Sami will recognize $50 of compensation income, but she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
C) Sami will not recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
D) Sami will not recognize $50 of compensation income, and she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.

E) None of the above
F) B) and D)

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Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received by the shareholders of the target corporation in the transaction.

A) True
B) False

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Don and Marie formed Paper Lilies Corporation on January 2. Don contributed cash of $400,000 in return for 50 percent of the corporation's stock. Marie contributed a building and land with the following fair market values and tax-adjusted bases in return for 50 percent of the corporation's stock. Don and Marie formed Paper Lilies Corporation on January 2. Don contributed cash of $400,000 in return for 50 percent of the corporation's stock. Marie contributed a building and land with the following fair market values and tax-adjusted bases in return for 50 percent of the corporation's stock. To equalize the exchange, Paper Lilies Corporation paid Marie $50,000 in addition to her stock. a. What amount of gain or loss does Marie realize on the formation of the corporation? b. What amount of gain or loss, if any, does she recognize? c. What is Marie's tax basis in the stock she receives in return for her contribution of property to the corporation? d. What adjusted basis does Paper Lilies Corporation take in the land and building received from Marie? To equalize the exchange, Paper Lilies Corporation paid Marie $50,000 in addition to her stock. a. What amount of gain or loss does Marie realize on the formation of the corporation? b. What amount of gain or loss, if any, does she recognize? c. What is Marie's tax basis in the stock she receives in return for her contribution of property to the corporation? d. What adjusted basis does Paper Lilies Corporation take in the land and building received from Marie?

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a. $250,000 gain realized
b. $50,000 gai...

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Which of the following statements best describes the tax law approach to recognizing gain or loss realized in an exchange?


A) Gain and loss realized is not recognized unless specifically stated otherwise in the Internal Revenue Code.
B) Gain and loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code.
C) Gain realized is recognized unless specifically stated otherwise in the Internal Revenue Code, but loss realized is not recognized unless specifically stated otherwise in the Internal Revenue Code.
D) Loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code, but gain realized is not recognized unless specifically stated otherwise in the Internal Revenue CodE.The general rule is that gain or loss realized is recognized unless otherwise specifically stated in the Internal Revenue Code.

E) None of the above
F) A) and C)

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Julian transferred 100 percent of his stock in Lemon Company to Apricot Corporation in a Type B stock-for stock exchange. In exchange, he received stock in Apricot with a fair market value of $200,000. Julian's tax basis in the Lemon stock was $400,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?


A) $200,000 loss recognized and a basis in Apricot stock of $200,000
B) No loss recognized and a basis in Apricot stock of $400,000
C) $200,000 loss recognized and a basis in Apricot stock of $400,000
D) No loss recognized and a basis in Apricot stock of $200,000

E) B) and C)
F) A) and B)

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Jasmine transferred 100 percent of her stock in Emerald Company to Jade Corporation in a Type A merger. In exchange she received stock in Jade with a fair market value of $800,000 plus $1,200,000 in cash. Jasmine's tax basis in the Emerald stock was $900,000. What amount of gain does Jasmine recognize in the exchange and what is her basis in the Jade stock she receives?

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$1,100,000 gain recognized and a stock b...

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Sue transferred 100 percent of her stock in Oakland Company to Applegate Corporation in a Type A merger. In exchange she received stock in Applegate with a fair market value of $800,000 plus $400,000 in cash. Sue's tax basis in the Oakland stock was $1,500,000. What amount of gain or loss does Sue recognize in the exchange and what is her basis in the Applegate stock she receives?

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No loss recognized. Her basis in the App...

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Paladin Corporation transferred its 90 percent interest to Furman Company as part of a complete liquidation of the company. In the exchange, Paladin received land with a fair market value of $1,000,000. The corporation's basis in the Furman Company stock was $400,000. The land had a basis to Furman Company of $200,000. What amount of gain does Paladin recognize in the exchange and what is its basis in the land it receives?


A) $600,000 gain recognized and a basis in the land of $1,000,000
B) $600,000 gain recognized and a basis in the land of $400,000
C) No gain recognized and a basis in the land of $400,000
D) No gain recognized and a basis in the land of $200,000

E) A) and C)
F) B) and C)

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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.

A) True
B) False

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Which statement best describes the concept of realization as it applies to gain or loss?


A) Realization is the recording of gain or loss on a tax return.
B) Realization is the result of an exchange of property rights in a transaction.
C) Realization is the excess of amount realized over adjusted basis.
D) Realization is the excess of adjusted basis over amount realizeD.Realization occurs when a person engages in a transaction.

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

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Which of the following statements best describes the requirement that must be met in a tax-deferred Type B stock-for-stock reorganization?


A) The 40 percent continuity of interest test must be met with respect to the stock transferred from the acquisition corporation to the target shareholders.
B) The acquiring corporation must hold substantially all of the target's properties after the acquisition.
C) The target corporation shareholders must receive "solely" voting stock in the acquiring corporation in the exchange.
D) The target corporation shareholders must receive voting stock in the acquiring corporation in exchange for 60 percent or more of the target corporation stock.

E) A) and B)
F) None of the above

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Amy transfers property with a tax basis of $900 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $450 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is Amy's tax basis in the stock received in the exchange?


A) $900
B) $750
C) $650
D) $450

E) None of the above
F) All of the above

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Which of the following statements best describes the concept of control as it applies to a section 351 transaction?


A) Control is defined as the ownership of 80 percent or more of a corporation's voting stock.
B) Control is defined as the ownership of 80 percent or more of the fair market value of a corporation's stock.
C) Control is defined as the ownership of 80 percent or more of a corporation's voting stock and 80 percent or more of the fair market value of a corporation's stock.
D) Control is defined as the ownership of 80 percent or more of a corporation's voting stock and 80 percent or more of the total number of shares of each class of nonvoting stock.

E) All of the above
F) A) and D)

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


A) The liquidated corporation always recognizes loss on the distribution of property in complete liquidation of the corporation.
B) The liquidated corporation never recognizes loss on the distribution of property in complete liquidation of the corporation.
C) The liquidated corporation recognizes loss on the distribution of property in complete liquidation of the corporation if the property is distributed to individuals who are not related parties to the corporation.
D) The liquidated corporation recognizes loss on the distribution of property in complete liquidation of the corporation only if the property is distributed to individuals who are related parties to the corporation.

E) All of the above
F) B) and C)

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Which of the following statements best describes the application of the continuity of enterprise principle to a Type A tax-deferred reorganization?


A) The continuity of business enterprise principle must be satisfied for both the acquirer and the target corporation.
B) The continuity of business enterprise principle must be satisfied for only the target corporation.
C) The continuity of business enterprise principle must be satisfied for only the acquirer.
D) The continuity of business enterprise principle does not have to be satisfied as long as the business purpose principle is satisfieD.The COBE test applies to either the historic business or historic business assets of the target corporation.

E) A) and C)
F) All of the above

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