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Exam 14: Corporate Nonliquidating and Liquidating Distributions

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Question 61

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Paladin Corporation transferred its 90 percent interest to Furman Company as part of a complete liquidation of the company.In the exchange, Paladin received land with a fair market value of $1,000,000.The corporation's basis in the Furman Company stock was $400,000.The land had a basis to Furman Company of $200,000.What amount of gain does Paladin recognize in the exchange and what is its basis in the land it receives?

A) $600,000 gain recognized and a basis in the land of $1,000,000.
B) $600,000 gain recognized and a basis in the land of $400,000.
C) No gain recognized and a basis in the land of $400,000.
D) No gain recognized and a basis in the land of $200,000.

E) A) and B)
F) A) and C)

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Question 62

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Which of these items is not an adjustment to taxable income to compute current E&P?

A) Dividends received deduction.
B) Tax-exempt income.
C) Net capital loss carryforward from the prior-year tax return.
D) All of these choices are adjustments.

E) B) and D)
F) B) and C)

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Question 63

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Bruin Company reports current E&P of $200,000 in year 1 and accumulated E&P at the beginning of the year of $100,000.Bruin distributed $400,000 to its sole shareholder on January 1, year 1.How much of the distribution is treated as a dividend in year 1?

Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Inc.After liquidating its remaining inventory and paying off its remaining liabilities, Amelia had the following tax accounting balance sheet. $\begin{array} { l r r r r } & \text { Tax Basis } & \text { FMV } & \text { Appreciation } \\\text { Cash } & \$ 100,000 & \$ 100,000 & \\\text { Building } & 150,000 & 200,000& 50,000 \\\text { Land } & \underline{50,000 }&\underline{ 120,000 }& \underline{70,000} \\\text { Total}&\underline{ \$ 300,000} &\underline{ \$ 420,000} & \underline{\$ 120,000}\\\end{array}$ Under the terms of the agreement, Gary will receive the $100,000 cash in exchange for his interest in Amelia.Gary's tax basis in his Amelia stock is $30,000.Laura will receive the building and land in exchange for her interest in Amelia.Laura's tax basis in her Amelia stock is $60,000. What amount of gain or loss does Laura recognize in the complete liquidation and what is Laura's tax basis in the building and land after the complete liquidation?

Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation.After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. $\begin{array} { l r r r r } &&& \text { Appreciation } \\& \text { Tax Basis } & \text { FMV } & \text {(Depreciation)}\\\text { Cash } & \$ 200,000 & \$ 200,000 & \\\text { Building } & 200,000 & 100,000& 100,000 \\\text { Land } & \underline{100,000 }&\underline{ 150,000 }& \underline{50,000} \\\text { Total}&\underline{ \$ 500,000} &\underline{ \$ 450,000} & \underline{\$ 50,000}\\\end{array}$ Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania.Mike's tax basis in his Pennsylvania stock is $50,000.Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania.Her tax basis in the Pennsylvania stock is $100,000. What amount of gain or loss does Pennsylvania recognize in the complete liquidation?

Wildcat Corporation reports current E&P of negative $200,000 in year 1 and accumulated E&P at the beginning of the year of $100,000.Wildcat distributed $300,000 to its sole shareholder on December 31, year 1.How much of the distribution is treated as a dividend in year 1?

Comet Corporation is owned equally by Patrick and his sister Pam, each of whom hold 100 shares in the company.Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December 31, year 1.Pam's income tax basis in each share is $500.Comet has total E&P of $250,000.What are the tax consequences to Pam as a result of the stock redemption?

Elk Corporation reports negative current E&P of $200,000 and positive accumulated E&P of $300,000.Elk distributed $200,000 to its sole shareholder, Barney Rubble, on December 31, year 1.Barney's tax basis in his Elk stock is $75,000.What is the tax treatment of the distribution to Barney and what is his tax basis in Elk stock after the distribution?

A corporation's "earnings and profits" account is equal to the company's "retained earnings" account on its balance sheet.

Geneva Corporation, a privately held company, has one class of voting common stock, of which 1,000 shares are issued and outstanding.Madison has a 20 percent interest in the Brewer partnership.The remaining 80 percent is owned by unrelated individuals.Madison owns 40 percent of Packer Corporation.The other 60 percent is owned by her father.The shares of Geneva are owned as follows: $\begin{array}{llcc} \text { Madisori Wieeserrary } &350 \\ \text { Brewer Partnership } &250\\ \text {Brett Cheesernari (Madison's graridaughter)) } &100\\ \text { Packer Corporation } &\underline{300}\\ \text { Total } &\underline{1,000}\\\end{array}$ How many shares of stock is Madison deemed to own under the family attribution rules in a stock redemption?

Katarina transferred her 10 percent interest to Spartan Corporation as part of a complete liquidation of the company.In the exchange she received land with a fair market value of $200,000.Katarina's basis in the Spartan stock was $100,000.The land had a basis to Spartan Company of $50,000.What amount of gain does Spartan recognize in the exchange and what is Katarina's basis in the land she receives?

Sam owns 70 percent of the stock of Club Corporation.Unrelated individuals own the remaining 30 percent.For a stock redemption of Sam's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Club stock must Sam own after the redemption?