Multiple Choice Answers

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Ball Corporation owns 80% of Net Corporation’s stock and Jack owns the remaining 20% of Net Corporation’s stock. Ball’s basis in the Net stock is $200,000 and Jack’s basis in the Net stock is $100,000. Under a plan of complete liquidation, Ball Corporation receives property with an adjusted basis of $400,000 and a FMV of $800,000 and Jack receives property with an adjusted basis of $50,000 and a FMV of $200,000. Ball and Jack’s recognized gains on the liquidation are:
Ball Jack
A) $0 $0
B) $0 $100,000
C) $200,000 $50,000
D) $600,000 $100,000

Parent Corporation owns all of Subsidiary Corporation’s stock. In addition, Parent Corporation owns $100,000 (face amount and basis) of Subsidiary Corporation’s bonds. When Subsidiary Corporation is completely liquidated, it distributes property with a $70,000 adjusted basis and a $100,000 FMV to Parent Corporation in redemption of the Subsidiary Corporation bonds. Following the liquidation, Parent Corporation will have a basis in the Subsidiary Corporation property received for the bonds of
A) $-0-.
B) $70,000.
C) $100,000.
D) none of the above

Identify which of the following statements is false.
A) The acquiring corporation does not recognize gains or losses under Sec. 1001 when it transfers non-cash boot property to the target corporation or its shareholders.
B) Gain recognized by a shareholder in a tax-free reorganization may be characterized as a dividend.
C) If no gain or loss is recognized by a stock or security holder in a tax-free reorganization, the stock or securities received take a substituted basis equal to the basis of the shares or securities surrendered.
D) Tax-free reorganizations generally do not involve actual redemptions of the stock of the target corporation’s shareholders.

Broom Corporation transfers assets with an adjusted basis of $300,000 and a FMV of $400,000 to Docker Corporation in exchange for $400,000 of Docker Corporation stock as part of a tax-free reorganization. The Docker stock had been purchased from its shareholders one year earlier for $350,000. How much gain do Broom and Docker Corporations recognize on the asset transfer?
Broom Docker
A) $0 $0
B) $0 $50,000
C) $100,000 $0
D) $100,000 $50,000

Identify which of the following statements is true.
A) In a tax-free reorganization, the acquiring corporation’s holding period for the acquired properties includes the period of time the target corporation held the properties.
B) In a tax-free reorganization, if the acquiring corporation uses nonmonetary boot property, gains or losses will be recognized by the acquiring corporation.
C) The receipt of cash by a shareholder results in the recognition of all of his or her realized gain even if the transaction qualifies as a tax-free reorganization.
D) All are false.

In which of the following reorganizations does the distributing corporation transfer all of itsassets to two controlled corporations before the distributing corporation dissolves?
A) split-off
B) spin-off
C) split-up
D) Type C reorganization

Identify which of the following statements is true.
A) A plan of reorganization must be a written document.
B) Advance rulings are required for all reorganizations.
C) The IRS will issue an advance ruling on any proposed tax-free reorganization.
D) All are false.

Identify which of the following statements is true.
A) To be part of an affiliated group a corporation must be at least 80% directly owned by another group member.
B) Only common stock is considered when determining if the 80% ownership test is met for affiliated group eligibility.
C) An affiliated group electing to file a consolidated return may be comprised of as few as two corporations.
D) All are false.

Ajak Corporation owns 85% of the single class of Utech Corporation stock. Utech Corporation owns 35% of Tech Corporation. Ajak Corporation also owns 50% of Tech Corporation, and Tech Corporation owns 75% of Baxter Corporation.
A) Ajak, Tech, Utech and Baxter Corporations are an affiliated group.
B) Ajak, Tech, and Baxter Corporations are an affiliated group.
C) Ajak, Tech and Utech Corporations are an affiliated group.
D) none of the above.

Identify which of the following statements is true.
A) If 100% of the stock of two corporations is owned by the same individual, the two corporations are eligible to file a consolidated return.
B) The check-the-box regulations permit partnership and LLCs to elect C corporation tax treatment.
C) A group of corporations that meets the parent-subsidiary controlled group requirements is always eligible to file a consolidated return.
D) All are false.

Identify which of the following statements is true.
A) Corporations that join in a consolidated return must adopt the same tax year as the parent corporation.
B) Permission to discontinue the filing of consolidated tax returns is sometimes granted by the IRS.
C) Additional administrative costs may be incurred when filing a consolidated tax return.
D) All are true.