income tax chapter 20 - H Chapter Twenty H CORPORATE...

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H Chapter Twenty H CORPORATE DISTRIBUTIONS, REDEMPTIONS, AND LIQUIDATIONS TEST BANK True or False 1. 2. It is possible for a corporation to pay a taxable dividend even though there is a deficit in accumulated 3. Corporations can distribute appreciated land held for investment as a dividend without recognizing any income. 4. Normally, a stock dividend is nontaxable as long as it does not change the proportionate interests of the shareholders. 5. T was granted one right for each share of stock that she owned. She was required to allocate basis to the stock rights. T was unwilling to exercise the rights to buy new stock because of the outlook for the company, and consequently they lapsed. Despite her views on the company’s future, she continued to hold her original stock. She is not allowed to deduct a loss equal to the basis assigned to the rights. 6. A shareholder must allocate a portion of the basis of stock owned to stock rights received as a dividend when the rights are received. 7. A loss is deductible when stock rights acquired in a tax-free distribution are allowed to expire. 8. Stock redemptions cannot qualify as ‘‘not essentially equivalent to a dividend.’’ 9. A redemption of voting common stock that reduces a taxpayer’s ownership from 60 percent to 45 percent will qualify as a substantially disproportionate redemption. 10. A distribution in partial liquidation is not considered equivalent to a dividend if it is attributable to a genuine contraction of the corporation’s business. 11. A corporation that has ceased operating one of its businesses can redeem stock from any shareholder under the partial liquidation provision. 12. If a corporation is closely held, the stock attribution rules will prevent a stock redemption from qualifying as a complete termination of ownership. 13. The stock attribution rules do not apply to redemptions that qualify as complete terminations of a shareholder’s interest. 20-1
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14. It is possible to recognize a capital gain on the sale of stock of a corporation that Taxpayer Z controls to another corporation that Taxpayer Z controls. 15. As a general rule, shareholders recognize capital gains and losses on the complete liquidation of a corporation. 16. Section 336 provides that a corporation will not recognize gain on a distribution in complete liquidation. 17. Because the law treats a corporation as having sold its assets when it distributes them in complete liquidation, the corporation will recognize solely capital gains and losses. 18. All losses on property distributed in a complete liquidation will be recognized by the corporation. 19.
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income tax chapter 20 - H Chapter Twenty H CORPORATE...

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