Multiple Choice Answers

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Texas Corporation is undergoing a complete liquidation and distributes land to Robert, one of its shareholders, in exchange for all of Robert’s stock. The land has a basis of $300,000 and a FMV of $400,000 on Texas Corporation’s books and is subject to a $325,000 liability. Robert assumes the liability on the property. Robert’s basis in his Texas Corporation stock is $100,000. What is the amount of gain or loss recognized by Robert on the distribution?
A) $175,000 gain
B) $25,000 gain
C) No gain or loss is recognized.
D) $25,000 loss

Property received in a corporate liquidation by a noncorporate shareholder has
A) a basis equal to its basis on the liquidating corporation’s books increased by any gain recognized by the shareholder upon receipt of the property. Its holding period includes the holding period of the shareholder’s stock.
B) a basis equal to its basis on the liquidating corporation’s books increased by any gain recognized by the shareholder upon receipt of the property. Its holding period commences on the day after the distribution date.
C) a basis equal to its FMV reduced by any liabilities assumed by the shareholder. Its holding period commences on the day after the distribution date.
D) a basis equal to its FMV. Its holding period commences on the day after the distribution date.

Identify which of the following statements is true.
A) In general, a noncorporate shareholder that receives a distribution in complete liquidation of the liquidating corporation recognizes his or her entire realized gain as a capital gain.
B) The basis for nonmoney property received by a noncorporate shareholder as part of a liquidating distribution is the same as its basis on the books of the liquidating corporation.
C) The liquidating corporation does not recognize gains and losses when making a distribution of nonmoney property.
D) All are false.

Identify which of the following statements is true.
A) A loss recognized by a shareholder upon complete liquidation of a corporation may not qualify for ordinary loss treatment if the stock is Sec. 1244 stock.
B) The loss that is recognized by an individual shareholder on the liquidation of a corporation is a capital loss, up to certain limits, if the stock is Sec. 1244 stock.
C) The loss recognized by a corporate shareholder on the worthlessness of the controlled subsidiary’s stock is an ordinary loss.
D) All are false.

Identify which of the following statements is true.
A) With limited exceptions, a loss can be recognized by a liquidating corporation when it makes a liquidating distribution of property that has declined in value.
B) When computing the corporate level gain on a liquidating distribution, the FMV of the property cannot exceed the liability assumed or acquired by the shareholder.
C) The FMV of property distributed by a liquidating corporation can be less than the amount of the liability assumed or acquired by the shareholder.
D) All are false.

Under a plan of complete liquidation, Key Corporation distributes land (not a disqualified property) with an adjusted basis of $410,000 and a FMV of $300,000 for all Sharon’s stock. Sharon’s basis in her 5% interest in the Key stock is $250,000. Find Sharon’s basis in the land and Key Corporation’s recognized gain or loss.
Basis Recognized Gain/Loss
A) $300,000 $110,000 loss
B) $250,000 $110,000 loss
C) $300,000 $-0-
D) 250,000 $-0-

Barnett Corporation owns an office building that cost $900,000. Barnett has taken $600,000 of depreciation on the building. The property is subject to a $600,000 mortgage. The office building has a current FMV of $400,000. Barnett Corporation is liquidated and the office building is distributed to a single individual shareholder who assumes the mortgage. Barnett Corporation must recognize
A) no gain or loss.
B) a $100,000 gain.
C) a $300,000 gain.
D) none of the above

Parent Corporation for ten years has owned all of the stock of Subsidiary Corporation, which manufactures widgets. Parent’s basis in Subsidiary’s stock is $500,000. Subsidiary Corporation is insolvent and has no assets to redeem any of the stock that Parent Corporation owns when it liquidates. Nearly all of Subsidiary’s gross income during the past five years has come from nonpassive activities. Parent can recognize
A) a $500,000 short-term capital loss.
B) a $500,000 long-term capital loss.
C) a $500,000 ordinary loss.
D) a $500,000 bad debt deduction.