Exam Review SU#9

Question 1

E&P is increased by

Answer 1

a distribution of appreciated property

Question 2

E&P is decreased by

Answer 2

the FMV of property net of any liability assumed by a shareholder

Question 3

Gain realized on the transfer of property

Answer 3

Transactions that qualify under section 351 for non-recognition of mortgages property to a controlled corp. does not require gain recognition unless the liabilities transferred or assumed are greater than the basis of all property transferred

Question 4

A shareholder of an S corporation must recognize gain of

Answer 4

A liability assumed by an S corporation from the sale or exchange of an asset the gain recognized is only to the extent it exceeds the AB of the property contributed by the shareholder

Question 5

Qualified Reorganization

Answer 5

A mere change in identity, form, or place of organization of one corporation does not qualify as a reorganization

Question 6

Securities in corporations not parties to a reorganization are

Answer 6

Boot. A corporation must be a party to a reorganization in order for its property, stock, or securities, to be exchanged tax-free.

Question 7

Under a plan of complete Liquidation

Answer 7

Section 336(a) provides that a corporation should treat a complete liquidation as a sale using the FMV. However, Sec. 336(b) requires the FMV used should be less than any liability accepted by the distribute. Therefore, the new FMV would be the greater of the liability or the FMV.

Question 8

Any distribution of money or property made by a corporation to its shareholders with respect to their stock out of the corporations AE&P is treated as a

Answer 8

Taxable dividend. The current AE&P determine the level of taxability & the remaining will reduce AB in shareholder stock.

Question 9

Section 351 states that no gain or loss is recognized when property is transferred to a corporation in exchange for the corps stock if the person or persons transferring property are in control of the corp. immediately after the transfer

Answer 9

Control is defined as 80% ownership of corp. voting & nonvoting stock

Question 10

A corporation recognizes any losses realized on liquidating distributions

Answer 10

Applicable distributions include those assets acquired within 5 years by a contribution to capital or a section 351 exchange. Permanent disallowance of the loss results. Since the shareholder owns 90% he is a related party & therefore, this results in a permanent disallowance of the loss.

Question 11

A distribution of taxable stock rights or dividends are treated the same as

Answer 11

Any other property distribution, & holding period begins on the day after the distribution date.

Question 12

The solely-for-stock requirement of section 351 causes the entire transaction to be

Answer 12

non-taxable if any non-stock property is received by the shareholder. To the extent the shareholder receives the corporations stock in exchange for property, non-recognition is required even if the shareholder receives some boot in the exchange

Question 13

A controlled group shareholders basis in the corporations stock is

Answer 13

the adjusted basis in contributed property adjusted for the boot received and the gain recognized

Question 14

A corporations loss on a distribution is treated as

Answer 14

No loss realized on ordinary distribution may be recognized. The shareholder takes the FMV basis in the property.

Question 15

Type A reorganization is

Answer 15

a statutory merger or consolidation

Question 16

Type B reorganization is or stock-for-stock requires

Answer 16

1. Shareholders acquire stock of a corporation solely for the voting stock of the acquiring corporation or parent
2. The acquiring corporation must control the target corporation immediately after exchange

Question 17

Type C reorganization is

Answer 17

when one corporation acquires all the assets of another in exchange for its voting stock or its parents

Question 18

Type D reorganization is

Answer 18

a corporation transfers all or part of its assets to another in exchange for the others stock.

Question 19

Type E reorganization is

Answer 19

the capital structure is modified by exchanges of stock and securities between the corporation and its shareholders

Question 20

A distribution of stock or rights to acquire stock in a distributing corp. is not included in the recipient’s gross income unless

Answer 20

It is either a disproportionate distribution or a distribution instead of money or other property.

1. a distribution in lieu of money
2. a disproportionate distribution
3. a distribution on preferred stock
4. A distribution of convertible preferred stock
5. a distribution of common & preferred stock, resulting in receipt of preferred stock by some shareholders & common stock by other shareholders

Question 21

The filing of form 1099-DIV

Answer 21

1. distributions in excess of $10 were made as dividends, capital gains, or nontaxable distributions
2. tax was withheld under the backup withholding rules
3. a liquidating payment of $600 was distributed
4. Form 1099 MISC report royalties

Question 22

Dividend income is limited to

Answer 22

The current & accumulated E&P of the corporation. Any additional distribution is treated as a non-taxable return of capital to the extent of shareholders basis

Question 23

When the redemption is substantially disproportionate it is considered a sale if

Answer 23

The share holder must own less than 50% of all outstanding voting stock immediately after the redemption and own less than 80% immediately before redemption

Question 24

The basis of property acquired by a corporation in connection with a Section 351 transaction is

Answer 24

the same basis in the hands of the transferor increased by the amount of gain recognized by the transferor