Questions -
Question 1 - Fact Pattern for Questions 21 and 22. EFG, Inc. is a calendar year corporation. EFG, Inc. had current earnings and profits of $100,000 and no accumulated earnings and profits when it distributed a total of $160,000, as a nonliquidating distribution, to its two equal shareholders, Jane and Joe. On the date of the cash distribution, Jane's basis in her EFG, Inc. stock was $10,000 and Joe's basis in his EFG, Inc. stock was $35,000. How much is includible by Jane in her gross income for the current taxable year with respect to the distribution to her?
A. $50,000 dividend income and 0 capital gain.
B. $80,000 dividend income and 0 capital gain.
C. 0 dividend income and $70,000 capital gain.
D. $50,000 dividend income and $20,000 capital gain.
Question 2 - Fact Pattern for Questions 21 and 22. EFG, Inc. is a calendar year corporation. EFG, Inc. had current earnings and profits of $100,000 and no accumulated earnings and profits when it distributed a total of $160,000 to its two equal shareholders, Jane and Joe. On the date of the cash distribution, Jane's basis in her EFG, Inc. stock was $10,000 and Joe's basis in his EFG, Inc. stock was $35,000. What is Joe's adjusted basis in his EFG, Inc. stock after the distribution?
A. $0.
B. $5,000.
C. $15,000.
D. $35,000.
Question 3 - Mary received a liquidating distribution from ABC Corporation as part of the redemption of all of the ABC Corporation's stock and the complete liquidation of ABC Corporation. Mary's basis for her ABC Corporation stock was $10,000. In exchange for her stock, Mary received a payment of $15,000 and property that had an adjusted basis to ABC Corporation of $10,000, a fair market value of $25,000, and that was encumbered by a $12,000 mortgage which Mary assumed. How much gain did Mary recognize as a result of this transaction?
A. $3,000.
B. $18,000.
C. $30,000.
D. $42,000.
E. None of the above.
Question 4 - Ann and Irene form AIB Corporation transferring their respective business assets to AIB Corporation. Ann exchanges her property with a basis to Ann of $100,000 and fair market value of $400,000 for 200 shares in AIB Corporation on March 1, 2009. Irene exchanges her property with a basis of $140,000 and fair market value of $600,000 for 300 shares in AIB Corporation on April 11, 2009. Bob transfers his property with a basis of $250,000 and fair market value of $1,000,000 for 500 shares in AIB Corporation on May 15, 2011. Bob's transfer is not part of Ann and Irene's plan to incorporate their businesses. What gain, if any, will Bob recognize on the transfer?
A. $0.
B. $250,000.
C. $750,000.
D. $1,000,000.
Question 5 - Tom and George form T and G Corporation. Tom transfers machinery worth $100,000 with a basis to Tom of $40,000, while George transfers land worth $90,000 with a basis to George of $20,000 and services rendered in organizing the corporation worth $10,000. Each is issued 25 shares in T and G Corporation. With respect to the transfers:
A. Tom has no recognized gain; George recognizes gain/income of $80,000.
B. Neither Tom nor George recognizes gain or income.
C. T and G Corporation has a basis of $30,000 in the land.
D. George has a basis of $30,000 in the shares of T & G Corporation.
Question 6 - The stock of Kenny Corp. is owned equally by two brothers. During 2008, they transferred land (which had a basis of $300,000 and a fair market value of $320,000) as a contribution to capital to Kenny Corp. During September, 2013, Kenny Corp. adopted a plan of complete liquidation and subsequently made a pro rata distribution of land back to the brothers. At the time of the liquidating distribution, the land had a fair market value of $180,000. What amount of loss can be recognized by Kenny Corp. on the distribution of land?
A. $0.
B. $20,000.
C. $120,000.
D. $140,000.
Question 7 - Henry, Emmy, and Frannie, unrelated individuals, own all of the stock in New Corporation with earnings and profits of $1,200,000 as follows: Henry own 1,300 shares; Emmy owns 400 shares; and Frannie owns 300 shares. New Corporation redeems 300 of Henry's shares with a basis of $60,000 for $450,000. With respect to the distribution in redemption of the stock:
A. Henry has a capital gain of $390,000.
B. Henry has dividend income of $450,000.
C. Henry has dividend income of $390,000.
D. Henry has a capital gain of $450,000.
Question 8 - Lucinda owns 1,100 shares of Old Corporation stock at a time when Old Corporation has 2,000 shares of stock outstanding. The remaining shareholders are unrelated to Lucinda. The corporation redeems 400 shares from Lucinda. Does the transaction qualify as substantially disproportionate redemption as to Lucinda?
A. We do not have sufficient information.
B. No.
C. Yes.
D. This is not a transaction that could qualify for sale or exchange treatment.
Question 9 - Helen, Greg, and Wanda own the stock in HGW Corporation with earnings and profits of $900,000 as follows: Helen, 600 shares; Greg, 400 shares; and Wanda, 1,000 shares. Greg is Helen's son, and Wanda is Helen's sister. HGW Corporation redeems 400 of Helen's shares with a basis of $55,000 for $240,000. Helen purchased the stock three years ago as an investment. With respect to the stock redemption, Helen has:
A. Dividend income of $185,000.
B. Dividend income of $240,000.
C. Long-term capital gain of $185,000.
D. Long-term capital gain of $240,000.
Question 10 - JKL Corporation has earnings and profits of $800,000 and has 1,000 shares of stock outstanding. That stock is held 550 shares by Anna and 450 shares by Ellen, who are unrelated individuals. JKL Corporation redeems 200 of Anna's shares for $1,000 per share. Anna paid $300 per share for her JKL Corporation stock nine years ago. Which of the following statements is correct with respect to the stock redemption?
A. Anna has dividend income of $200,000.
B. Anna has a long-term capital gain of $140,000.
C. Anna's basis in her remaining 350 shares is $60,000.
D. JKL Corporation reduces its E & P by $200,000.
Question 11 - 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