QUESTION 11 Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non recourse mortgage of $2,000 Zs adjusted basis for this building is $1,500 All of Zs stock is owned by C, whose basis for his stock in Z is $500 Z had 1,000 of E P Z is on the accrual method of accounting and reports on the calendar year Assume that the corporate tax payable by Z on $3,500 gain is $1,250 and on $3,000 gained is $1,000 Z sells the building, subject to the mortgage, to D in the current year for $3,000 in cash Z then liquidates, distributing all of the cash (remaining after paying its taxes) to C in cancellation of Cs stock in the current year Same facts as above, except that Z adopts a plan of complete liquidation instead of selling the building to D Z distributes the building to C in kind pursuant to the plan C then sells the building to D for $3,000 in cash with D taking subject to the mortgage of $2,000 a Section 336 treats Z as selling the building to C for $5,000 b Z will recognize $3,500 gain which is probably ordinary under Section 1239 c C will take the property subject to both $2,000 mortgage and most likely a $735 tax due from Z to the IRS d Cs basis will be the fair market value of $5,000 under Section 334(a) e All of the above 2 points QUESTION 12 Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non recourse mortgage of $2,000 Zs adjusted basis for this building is $1,500 All of Zs stock is owned by C, whose basis for his stock in Z is $500 Z had 1,000 of E P Z is on the accrual method of accounting and reports on the calendar year Assume that the corporate tax payable by Z on $3,500 gained is $1,250 and on $3,000 gained is $1,000 Z sells the building, subject to the mortgage, to D in the current year for $3,000 in cash Z then liquidates, distributing all of the cash (remaining after paying its taxes) to C in cancellation of Cs stock in the current year Same facts as above, except that Z adopts a plan of complete liquidation instead of selling the building to D Z distributes the building to C in kind pursuant to the plan C then sells the building to D for $3,000 in cash with D taking subject to the mortgage of $2,000 Same facts as above, except that Z is an S Corporation and Section 1374 does not apply a Z has $1,500 gain b C has a $2,500 gain on the distribution c C has a $1,000 ordinary loss on the distribution under Section 1244 if that section applies d C has $1,000 capital loss e None of the above

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QUESTION 11 Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non-recourse mortgage of $2,000.

QUESTION 11

Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non-recourse mortgage of $2,000. Zs adjusted basis for this building is $1,500. All of Zs stock is owned by C, whose basis for his stock in Z is $500. Z had 1,000 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Assume that the corporate tax payable by Z on $3,500 gain is $1,250 and on $3,000 gained is $1,000. Z sells the building, subject to the mortgage, to D in the current year for $3,000 in cash. Z then liquidates, distributing all of the cash (remaining after paying its taxes) to C in cancellation of Cs stock in the current year.

Same facts as above, except that Z adopts a plan of complete liquidation instead of selling the building to D. Z distributes the building to C in-kind pursuant to the plan. C then sells the building to D for $3,000 in cash with D taking subject to the mortgage of $2,000.

	a.	Section 336 treats Z as selling the building to C for $5,000.
	b.	Z will recognize $3,500 gain which is probably ordinary under Section 1239.
	c.	C will take the property subject to both $2,000 mortgage and most likely a $735 tax due from Z to the IRS.
	d.	Cs basis will be the fair market value of $5,000 under Section 334(a).
	e.	All of the above.

2 points

QUESTION 12

Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non-recourse mortgage of $2,000. Zs adjusted basis for this building is $1,500. All of Zs stock is owned by C, whose basis for his stock in Z is $500. Z had 1,000 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Assume that the corporate tax payable by Z on $3,500 gained is $1,250 and on $3,000 gained is $1,000. Z sells the building, subject to the mortgage, to D in the current year for $3,000 in cash. Z then liquidates, distributing all of the cash (remaining after paying its taxes) to C in cancellation of Cs stock in the current year.

Same facts as above, except that Z is an S Corporation and Section 1374 does not apply.

	a.	Z has $1,500 gain.
	b.	C has a $2,500 gain on the distribution.
	c.	C has a $1,000 ordinary loss on the distribution under Section 1244 if that section applies.
	d.	C has $1,000 capital loss.
	e.	None of the above.