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What attributes of a controlled subsidiary corporation are carried over to the parent when the subsidiary is liquidated?

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NOL carryovers, earnings and profits, ca...

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Identify which of the following statements is true.


A) Nonrecognition of gain or loss rules apply to a subsidiary corporation when, pursuant to its complete liquidation, the subsidiary transfers property to a third- party creditor.
B) The Sec. 332 nonrecognition rules apply to the parent corporation when a subsidiary corporation transfers property to the parent corporation in payment of the subsidiary's debt obligation.
C) A subsidiary corporation is prevented from recognizing gain or loss when transferring property to its parent corporation in satisfaction of an indebtedness it owes to the parent corporation as part of its complete liquidation.
D) All of the above are false.

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

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Last year, Toby made a capital contribution of a pretzel maker having a $2,000 adjusted basis and a $200 FMV to Keke Corporation in exchange for additional stock. This year, Keke Corporation adopted a plan of liquidation. Prior to the adoption of the liquidation plan, Keke had not used the pretzel maker in connection with the conduct of its trade or business. Which of the following statements is true?


A) Keke Corporation may recognize a loss of $200.
B) Keke Corporation's basis for determining the loss will be $2,000.
C) Keke Corporation may recognize a loss of $1,800.
D) Keke Corporation's basis for determining the loss will be $200.

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

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A corporation is required to file Form 966 within 30 days after the adoption of a plan of liquidation.

A) True
B) False

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Identify which of the following statements is true.


A) The loss recognized by a corporate shareholder on the worthlessness of the controlled subsidiary's stock is an ordinary loss.
B) The loss that is recognized by an individual shareholder on the liquidation of a corporation is a capital loss, up to certain limits, if the stock is Sec. 1244 stock.
C) A loss recognized by a shareholder upon complete liquidation of a corporation may not qualify for ordinary loss treatment if the stock is Sec. 1244 stock.
D) All of the above are false.

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

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Liquidation and dissolution have the same legal meaning.

A) True
B) False

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Identify which of the following statements is true.


A) The liquidating corporation does not recognize gains and losses when making a distribution of nonmoney property.
B) In general, a noncorporate shareholder that receives a distribution in complete liquidation of the liquidating corporation recognizes his or her entire realized gain as a capital gain.
C) The basis for nonmoney property received by a noncorporate shareholder as part of a liquidating distribution is the same as its basis on the books of the liquidating corporation.
D) All of the above are false.

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

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Under a plan of complete liquidation, Coast Corporation distributes land with a $300,000 adjusted basis and a $400,000 FMV to William, a 25% shareholder. William has a $200,000 basis in his Coast stock. The land is inventory in the hands of Coast Corporation. Coast Corporation must recognize


A) $200,000 of ordinary income.
B) $100,000 of long- term capital gain.
C) no gain.
D) $100,000 of ordinary income.

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

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Identify which of the following statements is true.


A) When computing the corporate- level gain on a liquidating distribution, the FMV of the property cannot exceed the liability assumed or acquired by the shareholder.
B) The FMV of property distributed by a liquidating corporation can be less than the amount of the liability assumed or acquired by the shareholder.
C) With limited exceptions, a loss can be recognized by a liquidating corporation when it makes a liquidating distribution of property that has declined in value.
D) All of the above are false.

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

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Market Corporation owns 100% of Subsidiary Corporation's stock. Market Corporation completely liquidates Subsidiary Corporation, receiving land with a $400,000 adjusted basis and a $500,000 FMV in exchange for Subsidiary stock, which has a $300,000 adjusted basis. Market Corporation has a basis in the land of


A) $500,000.
B) $300,000.
C) $400,000.
D) none of the above

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

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A Sec. 332 liquidation requires a complete statement be filed with the distributee's tax return


A) when a liquidating distribution is received.
B) when the liquidation is compiled.
C) when the liquidation plan is adopted.
D) No statement is required with the return.

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

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Identify which of the following statements is true.


A) An accrual method of accounting taxpayer recognizes his/her realized gain on a corporate liquidation when there has been actual or constructive receipt of the liquidating distribution(s) .
B) The method of accounting used by shareholders involved in a complete liquidation is relevant when determining the year in which the shareholder's gain or loss should be reported.
C) If a shareholder assumes or acquires liabilities of the liquidating corporation, the amount of these liabilities does not reduce the amount realized by the shareholder.
D) All of the above are false.

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

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The liquidation of a subsidiary corporation must be completed within one tax year to receive nonrecognition treatment.

A) True
B) False

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Identify which of the following statements is false.


A) Baker Corporation was formed in a Sec. 351 exchange three years ago by Emil, Fred, and George who own equal stock interests. The corporation can be liquidated tax- free under the special liquidation rules of Secs. 332 and 337.
B) The tax attributes of the liquidating corporation carry over to the shareholders when the liquidation is conducted under the general liquidation rules.
C) The terms "liquidation" and "dissolution" are synonymous.
D) All of the above are false.

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

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Texas Corporation is undergoing a complete liquidation and distributes land to Robert, one of its shareholders, in exchange for all of Robert's stock. The land has a basis of $300,000 and an FMV of $400,000 on Texas Corporation's books and is subject to a $325,000 liability. Robert assumes the liability on the property. Robert's basis in his Texas Corporation stock is $100,000. What is the amount of gain or loss recognized by Robert on the distribution?


A) $25,000 loss
B) $25,000 gain
C) $175,000 gain
D) No gain or loss is recognized.

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

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What are the differences, if any, in the tax rules applying to distributions made to a parent corporation and a minority shareholder when a controlled corporation liquidates?

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Shareholders receiving liquidating distr...

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Identify which of the following statements is false.


A) Sec. 337(a) provides that the liquidating corporation recognizes no gain or loss on the distribution of property to the 80% distributee in a complete Sec. 332 liquidation.
B) A corporation that distributes the stock of a subsidiary may elect to treat the distribution as a sale of the subsidiary's assets.
C) The depreciation recapture provisions in Secs. 1245 and 1250 override the Sec. 337(a) nonrecognition rule if a controlled subsidiary corporation is liquidated into its parent corporation.
D) Liquidating distributions made to minority shareholders in the tax- free liquidation of a controlled subsidiary corporation are treated by the liquidating corporation in the same way as nonliquidating distributions.

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

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Bluebird Corporation owns and operates busses and has decided to liquidate its operations. Victor, who owns 80% of the company's stock, will receive all of the busses, repair parts inventory, and all tools and equipment. He plans to start a bus company in another town. Penny, who owns 20% of the stock, wants nothing to do with the new bus business and will receive a cash distribution. Bluebird will incur about $20,000 of expenses in connection with the liquidation. What tax issues should Victor, Penny, and Bluebird consider with respect to the liquidation?

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Penny and Victor should consider the fol...

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Barnett Corporation owns an office building that cost $900,000. Barnett has taken $600,000 of depreciation on the building. The property is subject to a $600,000 mortgage. The office building has a current FMV of $400,000. Barnett Corporation is liquidated and the office building is distributed to a single individual shareholder who assumes the mortgage. Barnett Corporation must recognize


A) no gain or loss.
B) a $300,000 gain.
C) a $100,000 gain.
D) none of the above

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

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Explain the difference in tax treatment between a partial liquidation and a complete liquidation.

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A complete liquidation is defined by Reg...

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