Law question data bank Law question data bank Question 576. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question PR Ali is in the 35% tax bracket. He acquired 1,000 shares of stock in Cardinal Corporation seven years ago for $100 a share. In the current year, Cardinal Corporation (E & P of $1 million) redeems all of his shares for $300,000. What are the tax consequences to Ali if: a. Save your time! Proper editing and formatting Free revision, title page, and bibliography Flexible prices and money-back guarantee ORDER NOW The redemption qualifies for sale or exchange treatment, and Ali has no other transactions in the current year involving capital assets? Make sure you submit a unique essay Our writers will provide you with an essay sample written from scratch: any topic, any deadline, any instructions. 100% ORIGINAL ORDER NOW b. The redemption does not qualify for sale or exchange treatment? 577. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 91 Jill has a capital loss carryover in the current tax year of $80,000. She owns 1,000 shares of stock in Black Corporation which she purchased nine years ago for $75 per share. In the current year, Black Corporation (E & P of $800,000) redeems all of her shares for $600,000. Jill is in the 35% tax bracket. What are the tax consequences to Jill if: a. The redemption qualifies for sale or exchange treatment, and Jill has no other transactions in the current year involving capital assets? b. The redemption does not qualify for sale or exchange treatment? 578. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 92 Hawk Corporation has 2,000 shares of stock outstanding: Marina owns 700 shares, Russell owns 600 shares, Velvet Partnership owns 300 shares, and Yellow Corporation owns 400 shares. Marina and Russell, unrelated individuals, are equal partners of Velvet Partnership. Marina owns 25% of the stock in Yellow Corporation. a. Applying the § 318 stock attribution rules, determine how many shares in Hawk Corporation each shareholder owns, directly and indirectly: Marina: Russell: Velvet Partnership: Yellow Corporation b. Assume, instead, that Marina owns 75% of Yellow Corporation. How many shares does Marina own, directly and indirectly, in Hawk Corporation? 579. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 93 Egret Corporation has manufactured recreational vehicles for 8 years. In addition, for the last 3 years, Egret has operated a separate division that sells bicycle equipment. Francis, an individual, and Loon Corporation each acquired 500 shares of stock in Egret (basis of $2,000 per share) 10 years ago. In the current year, the bicycle equipment division is entirely destroyed by fire. Egret Corporation decides to discontinue the business and distributes pro rata all of the $5 million of insurance proceeds collected as a result of the fire to Francis and Loon Corporation in redemption of 200 shares of stock from each shareholder. Determine the tax consequences of the stock redemption to Egret Corporation (E & P of $6 million), to Francis, and to Loon Corporation. Corporation)]. 580. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 94 Sam’s gross estate includes stock in Tern Corporation and Wren Corporation, valued at $1.4 million and $980,000, respectively. At the time of Sam’s death in 2011, the stock represented 22% of Tern’s outstanding stock and 27% of Wren’s outstanding stock. Sam’s adjusted gross estate equals $6,500,000. Death taxes and funeral and administration expenses for Sam’s estate total $980,000. Sam had a basis of $350,000 in the Tern stock and $190,000 in the Wren stock at the time of his death. None of the beneficiaries of Sam’s estate own (directly or indirectly) any stock in Tern Corporation, but some of the beneficiaries own stock of Wren Corporation. Consider the following independent questions. a. What are the tax consequences to the estate if all of its Wren stock is redeemed by Wren Corporation for $980,000? b. What are the tax consequences to the estate if all of its Tern stock is redeemed by Tern Corporation for $1.4 million? 581. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 95 The gross estate of Raul, decedent who died in 2011, includes 700 shares of stock of Orange Corporation (basis to Raul of $400,000, fair market value on date of death of $3 million). The estate will incur $2 million of death taxes and funeral and administration expenses, and the adjusted gross estate is $8 million. Denise, Raul’s daughter and sole heir of his estate, owns the remaining 300 shares of Orange Corporation’s (1,000) shares outstanding. In the current year, Orange (E & P of $4 million) redeems all of the estate’s 700 shares for $3 million. What are the tax consequences of the redemption to Raul’s estate? 582. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 96 Ivory Corporation (E & P of $650,000) has 1,000 shares of common stock outstanding owned by unrelated parties as follows: Veronica, 500 shares, and Tommie, 500 shares. Veronica and Tommie each paid $125 per share for the Ivory stock 12 years ago. In May of the current year, Ivory distributes securities held as an investment (basis of $140,000, fair market value of $250,000) to Veronica in redemption of 200 of her shares. a. What are the tax results to Veronica on the redemption of her Ivory stock? b. What are the tax results to Ivory Corporation on the distribution of the securities? 583. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 97 Fred is the sole shareholder of Puce Corporation, having a basis of $90,000 in 1,000 shares of Puce common stock. Last year, Puce (E & P of $500,000) issued a dividend of 2,000 shares of preferred stock to Fred. On the date of distribution, the fair market values per share of the common and preferred stocks were $160 and $20, respectively. In the current year, Puce (E & P of $720,000) redeems all of Fred’s preferred stock for its fair market value of $40,000. a. What are the tax consequences of the preferred stock dividend to Fred? b. What are the tax consequences of the stock redemption to Fred? c. What are the tax consequences of the stock redemption to Puce? 584. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 98 The stock in Camel Corporation is owned by Albert and Tomoko, who are unrelated. Albert owns 30% and Tomoko owns 70% of the stock in Camel Corporation. All of Camel Corporation’s assets were acquired by purchase. The following assets are to be distributed in complete liquidation of Camel Corporation: Adjusted Fair Market Basis Value Cash $400,000 $400,000 Inventory 80,000 100,000 Equipment 230,000 200,000 Land 390,000 300,000 a. What gain or loss would Camel Corporation recognize if it distributes the land to Albert and the cash, inventory, and equipment to Tomoko? b. What gain or loss would Camel Corporation recognize if it distributes the inventory and equipment to Albert and the cash and land to Tomoko? 585. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 99 Mary and Jane, unrelated taxpayers, own Gray Corporation’s stock equally. One year before the complete liquidation of Gray, Mary transfers land (basis of $420,000, fair market value of $350,000) to Gray Corporation as a contribution to capital. Assume that Mary also contributed other property in the same transaction having a basis of $20,000 and fair market value of $95,000. In liquidation, Gray distributes the land to Jane. At the time of the liquidation, the land is worth $290,000. a. How much loss may Gray Corporation recognize on the distribution of the land to Jane? b. Assume that the transfer of land to Gray Corporation was made so that the corporation could subdivide the land and build residential housing. However, a subsequent deterioration of the housing market forced Gray Corporation to abandon its plans. What amount of loss may Gray Corporation recognize on the distribution of the land to Jane? 586. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question100 After a complete liquidation has been adopted, Wren Corporation sells its only asset, unimproved land (basis of $200,000) held as an investment. The land is sold to Seth (an unrelated party) for $500,000. Under the terms of the sale, Wren Corporation receives cash of $50,000 and Seth’s notes for the balance of $450,000. The notes are payable over the succeeding 5 years ($90,000 per year) and carry an appropriate rate of interest. Immediately after the sale, Wren Corporation distributes the cash and notes to Adam, the sole shareholder of Wren. Adam has an adjusted basis of $80,000 in the Wren stock. The installment notes have a value equal to their face amount of $450,000. a. How will Wren Corporation be taxed on the distribution? b. How will Adam be taxed on his receipt of the cash and notes? 587. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question101 The stock of Tan Corporation (E & P of $1.3 million) is owned as follows: 90% by Egret Corporation (basis of $520,000), and 10% by Zoe (basis of $55,000). Both shareholders acquired their shares in Tan more than six years ago. In the current year, Tan Corporation liquidates and distributes land (fair market value of $1.1 million, basis of $750,000) and equipment (fair market value of $700,000, basis of $410,000) to Egret Corporation, and securities (fair market value of $200,000, basis of $150,000) to Zoe. What are the tax consequences of these distributions to Egret, to Tan, and to Zoe? 588. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question102 On April 16, 2010, Blue Corporation purchased 15% of the Gold Corporation stock outstanding. Blue Corporation purchased an additional 50% of the stock in Gold on November 23, 2010, and an additional 20% on May 4, 2011. On September 23, 2011, Blue Corporation purchased the remaining 15% of Gold Corporation stock outstanding. a. For purposes of the § 338 election, on what date does a qualified stock purchase occur? b. What is the due date for making the § 338 election? 589. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question ES Explain the stock attribution rules that apply in the case of stock redemptions. 590. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question103 What are the requirements that must be satisfied for a distribution to qualify under § 302(b)(2) as a disproportionate redemption? 591. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question104 Explain the requirements for waiving the family attribution rules in the case of complete termination redemptions. 592. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question105 The partial liquidation rules provide a unique opportunity for a corporation to contract its business enterprises in a manner that produces favorable tax results for its shareholders. Discuss the requirements for a partial liquidation and the resulting tax consequences to the shareholders. 593. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question106 When is a redemption to pay death taxes under § 303 most advantageous? 594. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question107 What are the tax consequences of a qualifying stock redemption to the distributing corporation? 595. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question108 Discuss the tax consequences associated with a sale of § 306 stock. Can the § 306 rules have a harsher tax result than if the corporation had distributed a taxable dividend in the first place? 596. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question109 The text discusses four different limitations on loss recognition by liquidating corporations. Provide a brief description of each of these loss limitations. 597. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question110 What are the tax consequences of a § 332 liquidation to the parent corporation, subsidiary corporation, and minority shareholder? 598. CHAPTER 6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question111 Describe the requirements for and tax consequences of a § 338 election.