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Exam 6: Corporations: Redemptions and Liquidations

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Question 61

True/False

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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.As a result of the loan,the redemption of Reginald's stock cannot qualify for sale or exchange treatment.

A) True
B) False

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Question 62

Multiple Choice

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Carol,Bonnie,and Ann,sisters,own 400 shares,400 shares,and 200 shares,respectively,in Teal Corporation (E & P of $800,000) .Teal Corporation redeems all of Ann's stock for $120,000.Ann paid $50 a share for the stock five years ago.Ann continued to serve as president of Teal after the redemption.With respect to the redemption:

A) Ann has a long-term capital gain of $120,000.
B) Ann has a long-term capital gain of $110,000.
C) Ann has dividend income of $120,000.
D) Ann has dividend income of $110,000.
E) None of the above.

F) B) and C)
G) A) and E)

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Question 63

Multiple Choice

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Which of the following is a correct statement regarding a redemption to pay death taxes under § 303?

As of January 1 of the current year,Grouse Corporation has E & P of $300,000.Lilly owns 320 shares of Grouse's common stock (basis of $45,000).On that date,Grouse declares and distributes a nontaxable preferred stock dividend,of which Lilly receives 100 shares.After the dividend,the fair market value of one share of Grouse common stock is $500,and the fair market value of one share of Grouse preferred stock is $200.Two months later,Lilly sells the 100 shares of the preferred stock to an unrelated individual for $20,000. a.What are Lilly's tax consequences resulting from the sale of the preferred stock? b.What is the effect on Grouse's E & P as a result of the sale of the preferred stock?

Currently,Brown Corporation (E & P of $800,000) has 1,000 shares of common stock outstanding.Pat owns 200 shares.His wife,Abby,owns 200 shares,his daughter,Kate,owns 200 shares,and his father,Harold,owns 400 shares.Two years ago,Pat contributed $25,000 to Brown Corporation in exchange for 100 newly issued shares of nonvoting preferred stock.In the current year,Brown Corporation redeems Pat's preferred stock for $40,000,its fair market value.With respect to the distribution in redemption of the preferred stock:

Five years ago,Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 1,000 shares of Blue Corporation in a transaction that qualified under § 351.The assets had a tax basis to her of $400,000 and a fair market value of $550,000 on the date of the transfer.In the current year,Blue Corporation (E & P of $1 million) redeems 100 shares from Eleanor for $290,000 in a transaction that qualifies for sale or exchange treatment.With respect to the redemption,Eleanor will have a:

In 2003,Floyd carried out a successful complete termination redemption of his stock in Gray Corporation.Floyd was able to qualify the transaction as a complete termination redemption only by use of the family attribution waiver.In 2008,Floyd inherits stock in Gray Corporation from his father.Floyd has acquired a prohibited interest within the 10-year postredemption period and,as a result,the 2003 redemption no longer qualifies as a complete termination redemption.