Chapter C6 Corporate Liquidating Distributions

23) 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.

24) 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 of the above are false.

25) 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 of the above are false.

26) Under a plan of complete liquidation, Coast Corporation distributes land with a $300,000 adjusted basis and a $400,000 FMV to William, a 25% shareholder. William has a $200,000 basis in his Coast stock. The land is inventory in the hands of Coast Corporation. Coast Corporation must recognize

A) no gain.

B) $100,000 of ordinary income.

C) $100,000 of long-term capital gain.

D) $200,000 of ordinary income.

27) 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 of the above are false.

28) Under a plan of complete liquidation, Key Corporation distributes land (not a disqualified property) with an adjusted basis of $410,000 and an 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.

A)

Basis	Recognized Gain/Loss
$300,000	$110,000 loss

B)

Basis	Recognized Gain/Loss
$250,000	$110,000 loss

C)

Basis	Recognized Gain/Loss
$300,000	$-0-

D)

Basis	Recognized Gain/Loss
$250,000	$-0-

29) 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

30) Identify which of the following statements is true.

A) A liquidating distribution of property other than a disqualified property that is made ratably to all shareholders (based on their stockholdings) will permit the recognition of loss on the portion of the distribution that is made to a related person.

B) A subsidiary corporation can recognize losses on distributions to either the parent corporation or minority shareholders in a Sec. 332 liquidation.

C) Section 336 prevents recognition of a loss when making a pro rata distribution of property to a related person.

D) All of the above are false.

31) Identify which of the following statements is true.

A) The loss realized on the sale of a property is disallowed when such property was received by a corporation as a contribution of capital in a transaction having as its principal purpose the recognition of loss pursuant to the corporation's subsequent liquidation later in the same taxable year.

B) Losses claimed in a tax return filed before the adoption of the plan of liquidation are not restricted by Sec. 336(d)(2).

C) Properties acquired by a liquidating corporation as a capital contribution occurring within three years of the adoption of a plan of liquidation are generally presumed to have a tax avoidance motive.

D) All of the above are false.

32) The stock of Cooper Corporation is 70% owned by Carole and 30% owned by Carole's brother, Chris. During 2005, Chris transferred property (basis of $100,000 and FMV of $120,000) as a contribution to the capital of Cooper. During February 2006, Cooper adopted a plan of liquidation and subsequently made a pro rata distribution of the property back to Carole and Chris. At the time of the liquidation, the property had an FMV of $80,000. What amount of loss can be recognized by Cooper on the distribution of property?

A) $0

B) $6,000

C) $12,000

D) $20,000