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FTax IRGTB ch20 p001-016

FTax IRGTB ch20 p001-016 - 20 Corporate Distributions...

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Corporate Distributions, Redemptions, and Liquidations Test Bank True or False 1. A corporation s accumulated E&P will equal its retained earnings. 2. It is possible for a corporation to pay a taxable dividend even though there is a deficit in accumulated E&P. 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. 20 20-1
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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. 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. When a subsidiary is liquidated by its parent corporation, the basis of the assets transferred from the subsidiary to the parent is determined by the amount of the parent s investment in the subsidiary s stock.
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