[30] In a valid IRC section 351 transaction Delta Corp., a C corporation, received an asset from a shareholder in which the the shareholder had a basis of $25M. The shareholder, due to some cash distributed to her along with stock of Delta Corp., recognized a gain of $5M upon executing the IRC section 351 contribution of the asset. Approximately a year after the IRC section 351 transaction Delta Corp. sold the asset to an unrelated third party for its fair market value ("FMV") of $60M. What IRC section 1001 gain, if any, will Delta Corp. recognize as a result of this sale? 2 points Question 28 [28] In 2019 Public Co., a C corporation, distributed one share of preferred stock for every ten shares of common stock held by the company's common stockholders. As of the close of 2019 Public Co. had total earnings and profits ("E&P"), both current and accumulated, equal to 60% of the value of the distributed preferred stock. Sarah Shareholder received preferred stock with a value of $50K. Sarah Shareholder appropriately assigned a basis of $10k to her preferred stock. In 2020 Sarah Shareholder sold the preferred stock she received to an unrelated party for $50K. What is the amount of gain, if any, that Sarah Shareholder will recognize based on the 2020 sale of her preferred stock for $50K? 2 points Question 29 [29] Closely Held Corp., a C corporation, distributes two pieces of real estate to the company's two 50% owners. The company's basis in each asset equaled $3M (for a total of $6M of basis in the two assets). The fair market value ("FMV") of each piece of real estate equaled $5M (for a total of $10M). What is the amount of gain, if any, that Closely Held Corp. recognize upon the distribution of the two pieces of real estate to the company's shareholder? 2 points Question 30 [30] Expressed in days, how far back in time can a check-the-box election be effective? 2 points Question 31 [31] Frances Founder owns 60% of the common stock, the only class of stock outstanding, in Closely Held Co., a C corporation. Founder wants to transition into retirement and, as a first step, wishes to sell a number of shares back to the company to reduce her ownership in the company so that the other stockholder (an individual not related to Founder) will become the majority shareholder. Founder also wants the stock repurchase to be treated as a redemption, not a dividend. What percentage number must Founder's ownership be less than after the repurchase to arithmetically trigger the results that Founder wants? 2 points Question 32 [32] At the start of calendar year 2020 HighTech Corp., a C corporation, had $40M of of accumulated earnings and profits ("E&P). For 2020 HighTech Corp. will record $5M of current E&P. If HighTech Corp. declares and distributes a dividend of $15M prior to the end of 2020 it's accumulated E&P at the end of 2020 will equal: 2 points Question 33 [33] From regular business operations (and without considering any distributions) Mega Corp., a C corporation, would have $20M of current earnings and profits ("E&P") for calendar year 2020. Prior to year-end 2020, Mega Corp. distributes a parcel of real estate with a basis equal to $2M, and a fair market value of $6M to its sole shareholder. Mega Corp. made no other distributions during 2020. At the end of 2020 Mega Corp.'s final current E&P balance will equal: 2 points Question 34 [34] Grandmother is the majority, 51% shareholder, in Family Co., a C corporation. Grandmother wants to sell all her shares to the company, move to Florida and retire. She has a high basis in her stock and wants to be able to treat the transaction as a capital gain, not a dividend. The company is able to pay $2M in cash and issue a note to Grandmother for $6M to purchase the stock owned by Grandmother at its fair market value of $8M. You are providing tax advice to Grandmother. In discussing the situation with Grandmother you learn that the other shareholders are Grandmother's children, or grandchildren. You apprise Grandmother that she can achieve capital gain treatment if she agrees to sever all connections to the company (except as a creditor) for the next ___________ years. (Using arabic numbers please fill in the blank.) 2 points Question 35 [35] XYZ Co. in executing a partial liquidation of its business (which business line it had conducted for six years) redeemed (per IRC section 302) 2,000 shares of its common stock (the only stock issued and outstanding for XYZ Co.) of the 10,000 shares outstanding. After the redemption there are 8,000 shares outstanding. Prior to this purchase of shares XYZ Co. had an earnings and profits ("E&P") of $40M. What will be XYZ Co.'s E&P after this redemption? 2 points Question 36 [36] George Smith, Sr. is the CEO of Family Co., a closely held (and primarily family held) C corporation. George Sr. owns 6,000 of the 10,000 outstanding common shares (the only shares issued and outstanding). George Sr., and the family, are interested in George Sr. transitioning out of the CEO position (and the business in general) so that Georgiana (George Sr.'s daughter) and George Jr. (George Sr.'s son) can, respectively, move into the CEO and President role and take over the running of the business. George Sr. is sitting on substantial capital losses from investing in WeDon'tWork Corp. Since Family Co. has a fair amount of cash, and could also issue a note payable to George Sr. to redeem his stock it is contemplated that Family Co. will purchase all of George Sr.'s stock. Georgiana and George Jr. each own 2,000 shares of stock in the company. Absent any actions, or elections taken by George Sr. that may be available under the IRC, how many shares of Family Co. is George considered owning prior to any purchase of shares by Family Co.? 2 points Question 37 [37] Atlas contributes real estate to Omega Corp., a C corporation, in a transaction governed by IRC section 351. The fair market value ("FMV") of the real estate equals $50M, and Atlas received stock in Omega Corp. reflecting a FMV of $50M. Atlas had a tax basis of $20M in the real estate. It so happens that, over the years, Atlas borrowed $30M from the S & L Bank secured by the real estate (commonly referred to as a mortgage loan). Atlas only received Omega Corp. stock in exchange for the real estate he contributed to the company. Atlas did not take any tax avoidance steps, and did have any tax avoidance motive in his participation in the IRC section 351 transaction. Consistent with regular and acceptable business and banking practices, the Bank released Atlas from any obligation on the $30M loan and substituted Omega Corp. as the debtor at the time of the formation of Omega Corp. How much gain, if any, will Atlas be required to recognize as a result of the formation or Omega Corp.? 2 points Question 38 [38] In the original formation of a C corporation, governed by IRC section 351, Samantha Shareholder, one of the contributing shareholders, contributed qualifying tangible property with a basis of $4K (and a fair market value of $6K) as well as accounting services worth $4K for the stock she received (worth $10K). How much, if any, ordinary income will Samantha Shareholder recognize as a result of this transaction? 2 points Question 39 [39] Securing a private letter ruling from the IRS, if available, is often an excellent way to proceed in regard to a substantial tax transaction since such a ruling, essentially, provides insurance that the IRS will accept the taxpayer's reported tax treatment of the transaction. In the partial liquidation area what is the minimum contraction (expressed in a percentage, but without using the percentage symbol) does the IRS require the expected contraction of the business (as represented by the net fair value of assets, gross revenue and the number of employees) to be in order to consider issuing a private letter ruling? 2 points Question 40 [40] In an IRC section 351 tax-free corporate formation Saul Shareholder contributes property with a tax basis of $400,000, a fair market value ("FMV") of $450,000 in exchange for cash of $100,000 and stock in the new company worth $350,000. What is the tax basis in the stock that Saul received?