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Exam 19: Corporations: Distributions Not in Complete Liquidation

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Question 41

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When does a redemption qualify as a not essentially equivalent redemption under § 302(b)(1)?

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To qualify as a not essentially equivale...

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Question 42

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In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations) : Adjusted Fair Market Basis Value Pink Corporation stock (held for investment) ^{$150,000 $120,000} Non-LIFO inventory ^{80,000 110,000} Warbler Corporation is not a member of a controlled group. As a result of the distribution:

A) The shareholders have dividend income of $200,000.
B) The shareholders have dividend income of $260,000.
C) Warbler has a recognized gain of $30,000 and a recognized loss of $30,000.
D) Warbler has no recognized gain or loss.
E) None of the above.

F) A) and E)
G) All of the above

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Question 43

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Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2014. -Section 179 expense in second year following election.

At the time of her death, Janice owned (in terms of the value of the stock outstanding) the following stock: 18% of Dove Corporation and 21% of Hawk Corporation. The value of these stocks is included in Janice's gross estate. For purposes of applying the 35% of the value of adjusted gross estate requirement under § 303 (i.e., redemption to pay death taxes), the Dove and Hawk stocks are aggregated.

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2014. -Gain on installment sale in 2014 deferred until 2015.

Pink Corporation declares a nontaxable dividend payable in rights to subscribe to common stock. Each right entitles the holder to purchase one share of stock for $25. One right is issued for every two shares of stock owned. Jack owns 100 shares of stock in Pink, which he purchased three years ago for $3,000. At the time of the distribution, the value of the stock is $45 per share and the value of the rights is $2 per share. Jack receives 50 rights. He exercises 25 rights and sells the remaining 25 rights three months later for $2.50 per right.

The terms "earnings and profits" and "retained earnings" are identical in meaning.

The tax treatment of corporate distributions at the shareholder level does not depend on:

Under certain circumstances, a distribution can generate (or add to) a deficit in E & P.

Nondeductible meal and entertainment expenses must be subtracted from taxable income to determine current E & P.

For purposes of the waiver of the family attribution rules in a complete termination redemption, the former shareholder must notify the IRS within 30 days of acquiring a prohibited interest in the corporation during the 10- year period following the redemption.

Six years ago, Ronald and his mom each owned 50% of the stock of Bronze Corporation. At such time, Bronze redeemed all of Ronald's stock. For the redemption year, Ronald filed the agreement required of the family attribution waiver and reported the transaction as a complete termination redemption (i.e., sale or exchange). In the current year, the mom passed away and willed her entire stock interest in Bronze to Ronald. The inheritance of Bronze stock by Ronald is a prohibited interest for purposes of the family attribution waiver.

The rules used to determine the taxability of stock dividends also apply to distributions of stock rights.

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2014. -Gain realized, but not recognized, in a like-kind exchange transaction in 2014.

Yolanda owns 60% of the outstanding stock of Amber Corporation. In a qualifying stock redemption, Amber distributes $20,000 to Yolanda in exchange for one-half of her shares (basis of $35,000). As a result of the redemption, Yolanda has a recognized capital loss of $15,000.

Reginald and Roland (Reginald's son) each own 50% of the stock of Robin Corporation. Reginald's stock interest is entirely redeemed by Robin Corporation. Two years later, Reginald loans Robin Corporation $250,000. The loan to Robin Corporation does not constitute a prohibited interest for purposes of the family attribution waiver.

Keshia owns 200 shares in Parakeet Corporation. Keshia has a 30% beneficiary interest in her deceased grandmother's estate. The estate owns 400 shares in Parakeet Corporation. None of the other beneficiaries of the estate own stock in Parakeet. In applying the § 318 attribution rules:

Robin Corporation distributes furniture (basis of $40,000; fair market value of $50,000) as a property dividend to its shareholders. The furniture is subject to a liability of $55,000. Robin Corporation recognizes gain of:

Which of the following statements regarding constructive dividends is not correct?

If stock rights are taxable, the recipient has income to the extent of the fair market value of the rights.