1.The special tax treatment of corporate reorganization offers an opportunity to engage in tax free transaction with the common result there is permanent elimination investor gain or loss. Select one: True False 2. X corporation is liquidated distributing land to A ( and individual) , the sole shareholder of the corporation. What information is necessary to determine the tax consequences to X Corporation and A ? Select one: a. Fair market value of land b. Adjusted basis of the land c. A's adjusted basis in the X corporation stock d. All of the above 3.When a corporation is liquidated, the shareholder must report dividend income to the extent of available earnings and profits. Select one: True False 4. X Corporation purchased land 5 years ago for $450,000. The corporation is being liquidated when the land is worth $300,000. The land will be distributed to A ( the 60% shareholder with stock adjusted basis of $450,000) . B (40% shareholder with stock adjusted basis of $600,000) will get cash of $200,000. The following are the tax consequences of the liquidation. Select one: a. B reports dividend of $200,000 b. A reports a loss of $150,000 c. X Corporation reports no loss on distribution of land d. b. and c. are correct e. none of the above 5. If a liquidation qualifies under Section 332 (parent / subsidiary liquidation), none of the shareholders report gain or loss as a result of the liquidation. Select one: True False 6.The following facts describe a liquidation of a corporation 100% owned by an individual. For purposes of calculation assume a high bracket individual taxpayer and a marginal corporate tax rate of 35% Assets of liquidating corporation: Fair market value = $500,000 Adjusted basis = $100,000 Corporate liabilities before liquidation = $160,000 Shareholder's adjusted basis in stock = 80,000 How much gain does the shareholder report ? Shareholder Select one: a. $280,000 b. $420,000 c. $120,000 d. None of the above 7.X corporation is liquidated distributing cash to A ( and individual) , the sole shareholder of the corporation. What information is necessary to determine the tax consequences to A ? Select one: a.Earnings and profits of X corporation b.Details regarding when the plan of liquidation was adopted. c.A's adjusted basis in the stock d.All of the above 8. Federal income tax paid by the liquidating corporation related to a liquidation reduces the distribution to the shareholders and therefore indirectly reduces any gain reported by the shareholders in liquidation. Select one: True False 9. From the perspective of the distributing corporation, the tax treatment of the distribution of non-cash assets is the same for liquidating and non-liquidating distributions. Gain or loss is recognized. (Hint: Losses can be recognized in a complete liquidation.) Select one: True False 10.A Corporation owns 100% of the stock of B Corporation. The following information is needed to determine the tax consequences of liquidating B Corporation. Select one: a.Adjusted basis of B Corporation stock owned by A Corporation. b.The earnings and profits of A Corporation c.The date A Corporation acquired stock of B Corporation d.a. and c. e.None of the above

Corporate Liquidations and Reorganizations Objectives Understand and be able to apply the federal income law related to the liquidation of corporations To be aware of the basic tax consequences of corporate reorganizations Lesson CORPORATE LIQUIDATIONS Definition of Liquidation A corporate liquidation is a process that causes the corporation to cease as a going concern. A liquidation will result in corporate assets being used to satisfy corporate liabilities with the excess of assets over liabilities being distributed to the shareholders. Ultimately, this process will lead to the termination of the corporation. For federal income tax purposes, a liquidation can occur even if the corporation continues to legally exist without assets or with assets held to satisfy corporate liabilities. Shareholder Tax Consequences From a shareholder perspective, a corporate liquidation is treated as a sale of the stock of the liquidating corporation (IRC Section 331) which will usually cause gain or loss to be recognized for the difference between the net amount received and the adjusted basis in the stock of the liquidating corporation. There is an important exception that can result in no gain or loss being recognized by a corporation that owns 80% or more of the stock of the liquidating corporation. This special rule (IRC Section 332) is discussed below. Liquidating Corporation Tax Consequences When a corporation is liquidated, any non-cash assets distributed to the shareholders are treated as if they had been sold by the corporation (IRC Section 336). This sale treatment usually results in the asset gain or loss being recognized. There are three important exceptions to this usual result: 1. 2. 3. assets distributed to an 80% or more corporate shareholder in a qualified liquidation (Parent - Subsidiary Liquidations- IRC 332 - discussed below) assets which have a potential recognized loss and fit one of two alternative \"anti-stuffing\" requirements ( IRC 336(d)) assets distributed as part of a \"qualified\" corporate reorganization. The recognition of realized gain is the same result applicable to non-liquidating distributions (IRC 311). The usual recognition of losses is different than the treatment given non-liquidating distributions where losses are not recognized (IRC 311). Anti-Stuffing Rules (IRC Section 336(d)) The anti-stuffing rules of IRC Section 336 are designed to prevent corporate deduction of losses when the assets distributed in liquidation are assets which were contributed to the corporation with unrealized losses at the time of contribution. This could be accomplished by using Section 351 to move the unrealized loss asset tax into the corporation. The text describes the precise requirements that can cause the loss not to be recognized by the distributing corporation. Assets Distributed in Qualified Reorganizations _ IRC 336(c) Corporations can be liquidated as part of a series of transactions which qualify as a \"reorganization\" as described in IRC Section 368. If assets are distributed as part of a \"reorganization\The special tax treatment of corporate reorganization offers an opportunity to engage in tax free transaction with the common result there is permanent elimination investor gain or loss. Select one: True False Feedback Corporate reorganizations usually only defer investor gain or loss not eliminate it. The correct answer is: False Question 2 Correct 10.00 points out of 10.00 Flag question Question text X corporation is liquidated distributing land to A ( and individual) , the sole shareholder of the corporation. What information is necessary to determine the tax consequences to X Corporation and A ? Select one: Fair market value of land Adjusted basis of the land A's adjusted basis in the X corporation stock All of the above Feedback X Corporation will report gain or loss on the distribution making the fair market value and adjusted basis of the land necessary. A will recognize gain or loss on the liquidation, making The correct answer is: All of the above Question 3 Incorrect 0.00 points out of 10.00 Flag question Question text When a corporation is liquidated, the shareholder must report dividend income to the extent of available earnings and profits. Select one: True False Feedback A corporate liquidation is treated as a sale of the stock of the corporation which will usually result in a capital gain or loss. The correct answer is: False Question 4 Incorrect 0.00 points out of 10.00 Flag question Question text X Corporation purchased land 5 years ago for $450,000. The corporation is being liquidated when the land is worth $300,000. The land will be distributed to A ( the 60% shareholder with stock adjusted basis of $450,000) . B (40% shareholder with stock adjusted basis of $600,000) will get cash of $200,000. The following are the tax consequences of the liquidation. Select one: B reports dividend of $200,000 A reports a loss of $150,000 X Corporation reports no loss on distribution of land b. and c. are correct none of the above Feedback A reports the liquidation as the sale of the stock with a $150,000 loss. The special rule of 336(d) causes disallowance of a loss on a disproportionate distribution to a related party. Note that there is no requirement that the property be acquired in a Section 351 transfer if the distribution is disproportionate. The correct answer is: b. and c. are correct Question 5 Incorrect 0.00 points out of 10.00 Flag question Question text If a liquidation qualifies under Section 332 (parent / subsidiary liquidation), none of the shareholders report gain or loss as a result of the liquidation. Select one: True False Feedback The statement is not true because "minority shareholders" do not get tax free treatment. The correct answer is: False Question 6 Incorrect 0.00 points out of 10.00 Flag question Question text The following facts describe a liquidation of a corporation 100% owned by an individual. For purposes of calculation assume a high bracket individual taxpayer and a marginal corporate tax rate of 35% Assets of liquidating corporation: Fair market value = $500,000 Adjusted basis = $100,000 Corporate liabilities before liquidation = $160,000 Shareholder's adjusted basis in stock = 80,000 How much gain does the shareholder report ? Shareholder Select one: $280,000 $420,000 $120,000 None of the above Feedback Corporation pays tax of $140,0000 - ( 500-100) x 35% Previous liabilitites = $160 + 140= asset reduction in liquidation = $300,0000 Asset FMV = $500,000 Asset reduction ( 300,000) Liquidation proceeds to SH $200,000 Adjusted basis stock GAIN 80,000 $120,000 The correct answer is: $120,000 Question 7 Incorrect 0.00 points out of 10.00 Flag question Question text X corporation is liquidated distributing cash to A ( and individual) , the sole shareholder of the corporation. What information is necessary to determine the tax consequences to A ? Select one: Earnings and profits of X corporation Details regarding when the plan of liquidation was adopted. A's adjusted basis in the stock All of the above Feedback The liquidation is treated as a sale or exchange which makes the stock basis relevant. The other two answers have no effect on A's tax consequences. The correct answer is: A's adjusted basis in the stock Question 8 Incorrect 0.00 points out of 10.00 Flag question Question text Federal income tax paid by the liquidating corporation related to a liquidation reduces the distribution to the shareholders and therefore indirectly reduces any gain reported by the shareholders in liquidation. Select one: True False Feedback This is a true statement. The correct answer is: True Question 9 Incorrect 0.00 points out of 10.00 Flag question Question text From the perspective of the distributing corporation, the tax treatment of the distribution of noncash assets is the same for liquidating and non-liquidating distributions. Gain or loss is recognized. (Hint: Losses can be recognized in a complete liquidation.) Select one: True False Feedback No losses can be recognized related to non-liquidating distributions (IRC 311). Generally losses can be recognized in liquidation. There are some exception such as the anti-stuffing rule. The correct answer is: False Question 10 Incorrect 0.00 points out of 10.00 Flag question Question text A Corporation owns 100% of the stock of B Corporation. The following information is needed to determine the tax consequences of liquidating B Corporation. Select one: Adjusted basis of B Corporation stock owned by A Corporation. The earnings and profits of A Corporation The date A Corporation acquired stock of B Corporation a. and c. None of the above Feedback This liquidation could qualify for tax free treatment ( IRC Section 332) with A Corporation getting an adjusted basis in B's assets equal to B's basis . None of the indicated items are necessasry The correct answer is: None of the above The special tax treatment of corporate reorganization offers an opportunity to engage in tax free transaction with the common result there is permanent elimination investor gain or loss. Select one: True False Feedback Corporate reorganizations usually only defer investor gain or loss not eliminate it. The correct answer is: False Question 2 Correct 10.00 points out of 10.00 Flag question Question text X corporation is liquidated distributing land to A ( and individual) , the sole shareholder of the corporation. What information is necessary to determine the tax consequences to X Corporation and A ? Select one: Fair market value of land Adjusted basis of the land A's adjusted basis in the X corporation stock All of the above Feedback X Corporation will report gain or loss on the distribution making the fair market value and adjusted basis of the land necessary. A will recognize gain or loss on the liquidation, making The correct answer is: All of the above Question 3 Incorrect 0.00 points out of 10.00 Flag question Question text When a corporation is liquidated, the shareholder must report dividend income to the extent of available earnings and profits. Select one: True False Feedback A corporate liquidation is treated as a sale of the stock of the corporation which will usually result in a capital gain or loss. The correct answer is: False Question 4 Incorrect 0.00 points out of 10.00 Flag question Question text X Corporation purchased land 5 years ago for $450,000. The corporation is being liquidated when the land is worth $300,000. The land will be distributed to A ( the 60% shareholder with stock adjusted basis of $450,000) . B (40% shareholder with stock adjusted basis of $600,000) will get cash of $200,000. The following are the tax consequences of the liquidation. Select one: B reports dividend of $200,000 A reports a loss of $150,000 X Corporation reports no loss on distribution of land b. and c. are correct none of the above Feedback A reports the liquidation as the sale of the stock with a $150,000 loss. The special rule of 336(d) causes disallowance of a loss on a disproportionate distribution to a related party. Note that there is no requirement that the property be acquired in a Section 351 transfer if the distribution is disproportionate. The correct answer is: b. and c. are correct Question 5 Incorrect 0.00 points out of 10.00 Flag question Question text If a liquidation qualifies under Section 332 (parent / subsidiary liquidation), none of the shareholders report gain or loss as a result of the liquidation. Select one: True False Feedback The statement is not true because "minority shareholders" do not get tax free treatment. The correct answer is: False Question 6 Incorrect 0.00 points out of 10.00 Flag question Question text The following facts describe a liquidation of a corporation 100% owned by an individual. For purposes of calculation assume a high bracket individual taxpayer and a marginal corporate tax rate of 35% Assets of liquidating corporation: Fair market value = $500,000 Adjusted basis = $100,000 Corporate liabilities before liquidation = $160,000 Shareholder's adjusted basis in stock = 80,000 How much gain does the shareholder report ? Shareholder Select one: $280,000 $420,000 $120,000 None of the above Feedback Corporation pays tax of $140,0000 - ( 500-100) x 35% Previous liabilitites = $160 + 140= asset reduction in liquidation = $300,0000 Asset FMV = $500,000 Asset reduction ( 300,000) Liquidation proceeds to SH $200,000 Adjusted basis stock GAIN 80,000 $120,000 The correct answer is: $120,000 Question 7 Incorrect 0.00 points out of 10.00 Flag question Question text X corporation is liquidated distributing cash to A ( and individual) , the sole shareholder of the corporation. What information is necessary to determine the tax consequences to A ? Select one: Earnings and profits of X corporation Details regarding when the plan of liquidation was adopted. A's adjusted basis in the stock All of the above Feedback The liquidation is treated as a sale or exchange which makes the stock basis relevant. The other two answers have no effect on A's tax consequences. The correct answer is: A's adjusted basis in the stock Question 8 Incorrect 0.00 points out of 10.00 Flag question Question text Federal income tax paid by the liquidating corporation related to a liquidation reduces the distribution to the shareholders and therefore indirectly reduces any gain reported by the shareholders in liquidation. Select one: True False Feedback This is a true statement. The correct answer is: True Question 9 Incorrect 0.00 points out of 10.00 Flag question Question text From the perspective of the distributing corporation, the tax treatment of the distribution of noncash assets is the same for liquidating and non-liquidating distributions. Gain or loss is recognized. (Hint: Losses can be recognized in a complete liquidation.) Select one: True False Feedback No losses can be recognized related to non-liquidating distributions (IRC 311). Generally losses can be recognized in liquidation. There are some exception such as the anti-stuffing rule. The correct answer is: False Question 10 Incorrect 0.00 points out of 10.00 Flag question Question text A Corporation owns 100% of the stock of B Corporation. The following information is needed to determine the tax consequences of liquidating B Corporation. Select one: Adjusted basis of B Corporation stock owned by A Corporation. The earnings and profits of A Corporation The date A Corporation acquired stock of B Corporation a. and c. None of the above Feedback This liquidation could qualify for tax free treatment ( IRC Section 332) with A Corporation getting an adjusted basis in B's assets equal to B's basis . None of the indicated items are necessasry The correct answer is: None of the above