12). In general, a liquidating corporation recognizes both gains and losses.

Question 12 options:

	True
	False

15).

Which of the following statements regarding corporate earnings and profits (E&P) is correct?

Question 15 options:

a. Current E&P is the same as taxable income.

b. Negative E&P occurs when a distribution to the shareholder is larger than the balance in current E&P.

c. If current E&P is positive and accumulated E&P is negative, you net the two amounts to determine whether the distribution to the shareholder will be treated as a dividend.

d. For tax purposes, a dividend is defined as a distribution out of corporate E&P to the shareholder.

Both c. and d.

None of the above.

16).

In 2021, Alphonse and Erica form AE, Inc., a C-corporation. Erica contributed $100,000 in cash in exchange for 1,000 shares in AE. Alphonse contributed an asset with a fair market value of $120,000 and an adjusted basis of $140,000 in exchange for $20,000 of cash and 1,000 shares of AE stock.

Question 16 options:

Alphonse will recognize a $20,000 gain.

Alphonse will recognize a $20,000 loss.

Alphonse's basis in AE stock is $140,000. AE basis in the property contributed by Alphonse is $140,000.

Erica's basis in her AE stock is $100,000 and Alphonse's basis in his AE stock is $100,000.

None of the above.

17).

Jim has a sole proprietorship and his sister Jane is the sole shareholder in a C-corporation. This year Jim's sole proprietorship had $400,000 of taxable income. Jane's C-corporation also has $400,000 of taxable income. Since Jim's sole proprietorship is new, he was unable to take any cash or property out of the business this year. Jane's C-corporation also did not distribute any cash or property to Jane this year. Both Jim and Jane have income from other sources that put them in the 37% tax bracket before considering their income from their respective businesses.

Question 17 options:

	a. Both Jim and Jane will have $400,000 of taxable income for their respective businesses this year (Jim from this sole proprietorship and Jane from her C-corporation.
	b. Jim will have a federal income tax liability of $148,000 on his income from the sole proprietorship.
	c. Since Jane is in the 37% bracket, the $400,000 taxable income of her C-corporation will be taxed at 20%.
	d. Both b. and c.
	e. None of the above.