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Exam 20: Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

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Question 41

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In the current year, Dove Corporation (E & P of $1 million) distributes all of its property in a complete liquidation. Alexandra, a shareholder, receives land having a fair market value of $100,000. Dove Corporation had purchased the land as an investment three years ago for $75,000, and the land was distributed subject to a $70,000 liability. Alexandra took the land subject to the $70,000 liability. What is Alexandra's basis in the land?

A) $100,000.
B) $75,000.
C) $30,000.
D) $5,000.
E) None of the above.

F) A) and C)
G) A) and D)

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Question 42

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Legal dissolution under state law is required for a liquidation to be complete for tax purposes.

A) True
B) False

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Question 43

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For purposes of the § 338 election, a corporation must acquire, in a taxable transaction, at least 80% of the stock (voting power and value) of another corporation within an 12-month period.

Explain whether shareholders are exempted from gain/loss recognition in nontaxable corporate reorganization or the gain/loss recognition is merely postponed.If postponed, what is the vehicle for ensuring the postponed gain/loss will be recognized in the future?

Corporate reorganizations can meet the requirements to qualify as like-kind exchanges if there is no boot involved.

Korat Corporation and Snow Corporation enter into an acquisitive "Type D" reorganization.Xin currently holds a 20-year, $10,000 Snow bond paying 4% interest.There are 8 years until the bond matures.In exchange for his Snow bond, Xin receives an 8 year $16,000 Korat bond paying 2.5% interest.Xin thinks this is fair because he will still receive $400 of interest each year and both bonds mature on the same date.How does Xin treat this transaction on his tax return?

On March 16, 2011, Blue Corporation purchased 10% of the Gold Corporation stock outstanding.Blue Corporation purchased an additional 40% of the stock in Gold on October 24, 2011, and an additional 25% on April 4, 2012.On July 23, 2012, Blue Corporation purchased the remaining 25% of Gold Corporation stock outstanding.

A subsidiary corporation is liquidated at a time when it is indebted to its parent corporation. The subsidiary corporation distributes property to the parent corporation in satisfaction of the indebtedness. If the liquidation is governed by § 332, neither the subsidiary nor the parent recognize gain or loss on the transfer of property in satisfaction of indebtedness.

On April 7, 2011, Crow Corporation acquired land in a transaction that qualified under § 351.The land had a basis of $400,000 to the contributing shareholder and a fair market value of $310,000.Assume that the shareholder also transferred equipment (basis of $100,000, fair market value of $200,000) in the same § 351 exchange.Crow Corporation adopted a plan of liquidation on October 5, 2012.On December 7, 2012, Crow Corporation distributes the land to Ali, a shareholder who owns 20% of the stock in Crow Corporation.The land's fair market value was $230,000 on the date of the distribution to Ali.Crow Corporation acquired the land to use as security for a loan it had hoped to obtain from a local bank.In negotiating with the bank for a loan, the bank required the additional capital investment as a condition of its making a loan to Crow Corporation.How much loss can Crow Corporation recognize on the distribution of the land?

The built-in loss limitation in a complete liquidation does not apply to losses attributable to a decline in a property's fair market value after its transfer to the corporation.