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CHAPTER 20 CORPORATIONS: DISTRIBUTIONS IN COMPLETE LIQUIDATION AND AN OVERVIEW OF REORGANIZATIONS TRUE/FALSE 1. A liquidation can occur for tax purposes even though the corporation has retained some assets to pay remaining debts and preserve legal status. ANS: T REF: p. 20-2 2. One difference between the tax treatment accorded nonliquidating and liquidating distributions is with respect to the basis of property received in the distributions. In a nonliquidating distribution (e.g., qualifying stock redemption), the shareholder takes a basis in the property equal to the corporation’s basis in the property, while the basis of property acquired in a liquidation is its fair market value on the date of the distribution. ANS: F The basis of property acquired in both nonliquidating and liquidating distributions is its fair market value on the date of the distribution. PTS: 1 REF: p. 20-4 3. As a general rule, a liquidating corporation recognizes gains and losses on the distribution of property in complete liquidation. ANS: T Gain and loss recognition is the general rule for the liquidating corporation. PTS: 1 REF: p. 20-4 4. For purposes of the related-party loss limitation in the context of a liquidating distribution, a corporation and a shareholder are considered related if the shareholder owns (directly or indirectly) more than 50% in value of the corporation’s outstanding stock. ANS: T REF: p. 20-5 5. In a corporate liquidation, the built-in loss limitation can apply to sales of property in addition to liquidating distributions of property. ANS: T REF: p. 20-7 20-1
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20-2 2008 Comprehensive Volume/Test Bank 6. In a complete liquidation (not a parent-subsidiary liquidation), a shareholder typically recognizes dividend income equal to his or her share (i.e., stock ownership percentage) of the liquidating ANS: F Capital gain or loss is the typical result to a shareholder in a complete liquidation, based on the difference between the fair market value of the assets received in the distribution and the basis of the stock surrendered. The liquidating corporation’s E & P is irrelevant for purposes of determining the tax consequences to the shareholder. PTS: 1 REF: p. 20-9 7. A shareholder may defer gain, to the point of collection, on the receipt of installment notes obtained in a liquidating distribution. ANS: T REF: p. 20-9 | Example 14 8. Section 332 cannot apply to a parent-subsidiary liquidation if the subsidiary corporation is insolvent on the date of the liquidation. ANS: T REF: p. 20-10 | Footnote 11 9. Gains but not losses are recognized by a subsidiary corporation on liquidating distributions to a minority shareholder in a § 332 liquidation.
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This note was uploaded on 06/11/2008 for the course ACCT 4153 taught by Professor Campbell during the Fall '08 term at The University of Texas at San Antonio- San Antonio.

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