Evan transferred real estate to a corporation in a Code Section 351 transaction. The real estate was a capital asset in Evan's hands and will also be a capital asset when held by the corporation. Evan's basis in the real estate was $10,000 and the value of the real estate was $8,000 on the date of the transfer. If Evan received $2,000 in cash and 100 shares of stock from the corporation in exchange for the real estate, the resulting bases for Evan's stock and the corporations real estate are:
A. Evan's stock basis is $8,000; Corporation's basis in the real estate is $8,000
B. Evan's stock basis is $10,000; Corporation's basis in the real estate is $10,000
C. Evan's stock basis is $10,000; Corporation's basis in the real estate is $8,000
D. Evan's stock basis is $6,000; Corporation's basis in the real estate is $12,000
MNOP, Inc. redeemed 100 shares of Julia's shares. The redemption did not satisfy all the requirements and thus was treated as a dividend for tax purposes. Julia's basis in the 100 shares redeemed:
A. Disappears forever.
B. Transfers to her remaining shares in MNOP Inc.
C. Reduces her dividend income by her adjusted basis in the shares.
D. None of the above.
Pursuant to a plan of corporate reorganization which qualified as an A reorganization, Lou received one share of stock of X Corporation worth $65 and cash of $20 in exchange for a share of stock in Y Corporation with a $95 basis to Lou. What is Lou's recognized gain or loss on this exchange?
A. 0.
B. $10 loss.
C. $10 gain.
D. $20 gain.
Pursuant to a plan of corporate reorganization, Pat exchanged 1,000 shares of Stream Corporation stock that she had purchased for $60,000, for 1,200 shares of Creek Corporation voting stock having a fair market value of $70,000, and $10,000 in cash. What is Pat's recognized gain on the exchange, and what is her basis in the Creek Corporation's stock?
A. $10,000 gain; $60,000 basis.
B. $10,000 gain; $70,000 basis.
C. $20,000 gain; $60,000 basis.
D. $20,000 gain; $70,000 basis.
Which of the following statements is true concerning all types of tax-free corporate reorganizations?
A. Assets are transferred from one corporation to another.
B. Stock is exchanged between the shareholders of at least two corporations.
C. Liabilities that are assumed when cash is also used as consideration will always be treated as boot.
D. None of the above statements is true.
Dick, Bev and Mollie form Murphy Corporation. Dick transfers land worth $80,000 (adjusted basis is $25,000) for 80 shares, Mollie transfers $40,000 cash for 40 shares and Bev transfers equipment worth $40,000 (adjusted basis is $16,000) and $40,000 of services for 80 shares. Bev's tax consequences are:
A. $64,000 recognized gain; basis in 80 shares of $80,000
B. $40,000 recognized gain; basis in 80 shares of $56,000
C. $24,000 recognized gain; basis in 80 shares of $40,000
D. $0 recognized gain; basis in 80 shares of $16,000
Best Company, Inc. had gross receipts of $400,000, cost of goods sold of $110,000, other expenses of $100,000 and a $90,000 net capital loss. Its taxable income is:
A. $210,000.
B. $200,000.
C. $190,000.
D. $100,000.
Smith owns 85 percent of Smith Sisters Company, Inc. On March 8, 2012, she contributed land to the firm. Her adjusted basis in the land was $60,000 and its fair market value on March 8 was $140,000. Smith did not receive anything in return for the contribution. As a result of this transaction, Smith Sisters Company, Inc. will:
A. recognize a gain of $80,000 and will take a basis in the land of $80,000.
B. recognize a gain of $140,000 and will take a basis in the land of $140,000.
C. not recognize a gain and will take a basis in the land of $60,000.
D. not recognize a gain and will take a basis in the land of $140,000.
Jessica owns 60 percent of Hudson Company, Inc. The firm needs some assets and all of the shareholders are considering contributing assets in a prearranged plan that would qualify all of them for Code Section 351 treatment. There has been no agreement among the parties as to the assets each would contribute, but it has been agreed that the fair market value of the assets contributed by each of them will be $150,000. Jessica is considering contributing 100 shares of XYZ Company, Inc. stock. Her basis in the shares is $200,000 and their fair market value is $150,000. Jessica is uncertain about the transaction. She is also considering selling the shares and contributing cash. Which of the following statements is correct?
A. If Jessica contributes the shares, then she will be able to recognize a $50,000 loss.
B. If Jessica sells the shares to Hudson Company, Inc. then she will be able to recognize $50,000 loss.
C. If Jessica sells the shares on a national stock exchange and contributes $150,000 of cash to Hudson Company, Inc. she will be able to recognize a $50,000 loss.
D. None of the above is correct.
A "C" corporation must do which of the following with respect to its taxable year?
A. The corporation must select a calendar year.
B. The corporation must select a fiscal year if it has a business reason for selection.
C. The corporation may select a calendar year or fiscal, regardless of the reason for selection.
D. The corporation must select a year that is the same as its major shareholders.
Paula receives a liquidating distribution from Pell Corporation as part of a redemption of all of its stock. Paula's basis for her Pell stock is $10,000. In exchange for her stock, Paula receives property with an $8,000 basis and a $15,000 fair market value that is subject to a $2,000 mortgage, and also receives cash of $5,000. How much is Paula's recognized gain?
A. $12,000.
B. $10,000.
C. $8,000.
D. $0.
Trusty Company, Inc. had accumulated E&P of $26,000 on January 1, 2012. Its current E&P for 2012 was negative $21,960 (that is, a deficit). On April 28, 2012, it distributed $20,000 to its shareholders. Assuming that the exact date of the loss is not known, the distribution is treated as:
A. $8,920 dividend and $11,080 return on capital.
B. $20,000 dividend.
C. $20,000 return of capital.
D. $16,000 dividend and $4,000 return of capital.
Ellen sells her Section 306 stock during the year for $16,000. Her basis in the stock was $2,000. In 2006, when she received the stock, its fair market value was $12,000 and the corporation's earnings and profits were $10,000. Assuming that Ellen retains her common stock, the result of the sale is:
A. $14,000 ordinary (dividend) income.
B. $14,000 long-term capital gain.
C. $10,000 ordinary (dividend) income and $4,000 long- term capital gain.
D. $12,000 ordinary (dividend) income and $2,000 long-term capital gain.
Babb Corporation owns 80 percent of Atley Corporation's stock and Linda owns the remaining 20 percent of Atley's stock. Babb Corporation's basis for its Atley stock is $300,000 and Linda's Atley stock has a basis of $80,000. Pursuant to a plan of complete liquidation of Atley Corporation, Babb Corporation receives property with a $400,000 adjusted basis and a $480,000 fair market value, and Linda receives property with a $130,000 adjusted basis and a $120,000 fair market value. The bases of the properties to Babb Corporation and Linda are:
A. Babb: $480,000; Linda: $120,000.
B. Babb: $400,000; Linda: $130,000.
C. Babb: $300,000; Linda: $80,000.
D. Babb: $400,000; Linda: $120,000.
The following statements regarding a corporation's liquidating distribution of loss assets to shareholders are all false, except:
A. The liquidating corporation cannot recognize a loss on a liquidating distribution.
B. A loss can be recognized on a subsidiary liquidating distribution to which Code Section 332 applies.
C. The liquidating corporation cannot recognize a loss on a distribution to a shareholder who is a "related taxpayer."
D. The general rule is that all losses are realized and recognized, subject to some exceptions.
ABC Corporation made cash contributions of $35,000 to charitable organizations in 2012. ABC Corporation had taxable income of $280,000 without taking into account its charitable contributions for the taxable year ended December 31, 2012, but after deducting a dividends-received deduction of $34,000. What amount, if any, can ABC Corporation deduct as charitable contributions for 2012?
A. $32,000
B. $31,400
C. $35,000
D. 0
Jack transferred property with an adjusted basis of $45,000 to JKL Corporation. There was a $35,000 mortgage on the property. In exchange for the transferred property, Jack received stock with a fair market value of $65,000 and $25,000 cash, and the corporation assumed the liability on the property. How much gain is recognized by Jack?
A. $0
B. $20,000
C. $25,000
D. $35,000
Jack transferred to JKL Corporation, real property that had an adjusted basis to Jack of $45,000. There was a $35,000 mortgage on the property. In exchange for the transferred property, Jack received stock with a fair market value of $65,000 and $25,000 cash, and the corporation assumed the liability on the property. What is Jack's basis in the stock he received?
A. $0
B. $20,000
C. $25,000
D. $45,000
Jack transferred property with an adjusted basis of $45,000 to JKL Corporation. There was a $35,000 mortgage on the property. In exchange for the transferred property, Jack received all of the stock of the corporation that had a fair market value of $70,000 and cash of $25,000, and the corporation assumed the liability on the property. What is JKL Corporations' basis in the property transferred to it by Jack?
A. $45,000
B. $65,000
C. $70,000
D. $90,000
Jack and Jill each own one-half of the stock of JJ Corporation, which corporation has earnings and profits of $15,000. JJ Corporation distributed to its two shareholders property with a total fair market value of $24,000 and an adjusted basis to the corporation of $24,000. The amount taxable to each shareholder as a dividend is.
A. $0
B. $7,500
C. $12,000
D. $15,000