South Western Federal Taxation 2015 Corporations Partnerships Estates and Trusts 38Th Edition Hoffman Solutions Manual Full Chapter PDF

South-Western Federal Taxation 2015
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CHAPTER 6
CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS
SOLUTIONS TO PROBLEM MATERIALS
Status: Q/P
Question/ Learning Present in Prior
Problem Objective Topic Edition Edition
1 LO 1 Why sale or exchange treatment limited to Unchanged 1

qualifying stock redemptions
2 LO 1 Stock redemption defined Unchanged 2
3 LO 1, 2, 6 Stock redemption or sale to third party Unchanged 3
4 LO 1 Sale or exchange versus dividend treatment Unchanged 4
on redemption
5 LO 1 Corporate shareholder preference for Unchanged 5
nonqualified stock redemption treatment
6 LO 1 Loss recognition in a qualifying stock Unchanged 6
redemption
6-1
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
6-2 2015 Corporations Volume/Solutions Manual
Status: Q/P
7 LO 1 Basis of property received in stock Unchanged 7

redemption
8 LO 1 Stock redemptions: effect of state law Unchanged 8
9 LO 1 Stock attribution rules: partnerships Unchanged 9
10 LO 1 Stock attribution rules: when not applicable Unchanged 10
11 LO 1 Not essentially equivalent redemption: Unchanged 11
requirements
12 LO 1 Nonqualified stock redemption: basis of Unchanged 12
shares redeemed
13 LO 1 Disproportionate redemption: requirements Unchanged 13
14 LO 1, 2 Complete termination redemption Unchanged 14
15 LO 1, 6 Complete termination redemption: Unchanged 15
requirements for family attribution waiver
16 LO 1 Partial liquidation: not essentially equivalent Unchanged 16
to a dividend
17 LO 1, 2 Partial liquidation Unchanged 17
18 LO 1, 2 Redemption to pay death taxes: requirements Unchanged 18
for and consequences of
19 LO 1, 2 Redemption to pay death taxes Unchanged 19
20 LO 2, 6 Gain/loss recognition to corporation on Unchanged 20
redemption distribution
Corporations: Redemptions and Liquidations 6-3
Status: Q/P
21 LO 1, 2, 6 Tax consequences of redemption to Unchanged 21

distributing corporation: divorce
22 LO 2 Tax consequences of redemption to Unchanged 22
distributing corporation: E & P
23 LO 3 Preferred stock bailout: consequences of sale Unchanged 23
24 LO 3 Redemption through use of related corporation: Unchanged 24
requirements
25 LO 4 Corporate liquidation: reasons for Unchanged 25
26 LO 4 Corporate liquidation: loss limitations Unchanged 26
27 LO 4 Corporate liquidation : defined Unchanged 27
28 LO 4 Related-party loss limitation: disqualified Unchanged 28
property defined
29 LO 4 Built-in loss limitation: tax avoidance purpose Unchanged 29
30 LO 4 Tax consequences to shareholder in complete Unchanged 30
liquidation: use of installment method to
report gain
31 LO 5 Section 332 liquidation: consequences to Unchanged 31
parent
32 LO 5 Section 332 liquidation: requirements Unchanged 32
33 LO 5 Section 332 liquidation: tax consequences to Unchanged 33
subsidiary and minority shareholder
34 LO 5 Section 332 liquidation: transfer in Unchanged 34
satisfaction of indebtedness
35 LO 5, 6 Section 338: when beneficial and detrimental Unchanged 35
to parent
36 LO 5 Section 338: consequences of election Unchanged 36
37 LO 5 Section 338: subsidiary liquidation compared Unchanged 37
with no election from parent’s perspective
38 LO 1, 2, 6 Comparison of dividend distribution with Unchanged 38
qualifying redemption: individual versus
corporate shareholder
39 LO 1 Comparison of tax treatment of dividend Unchanged 39
distribution and qualifying stock
redemption to individual shareholder
redemption to corporate shareholder
redemption to individual shareholder with
capital loss carryover
redemption to corporate shareholder with
capital loss carryover
Status: Q/P
43 LO 1 Stock attribution rules Unchanged 43

44 LO 1 Not essentially equivalent redemption and Unchanged 44
disproportionate redemption
45 LO 1, 2 Disproportionate redemption: minimum Unchanged 45
shares to qualify; tax consequences to
shareholder and corporation
46 LO 1 Complete termination redemption: Unchanged 46
applicability of family attribution waiver
47 LO 1, 2 Sale of stock versus complete termination Unchanged 47
redemption: effect on retiring shareholder,
remaining shareholder, and corporation
48 LO 1, 2 Partial liquidation: tax consequences to Unchanged 48
individual and corporate shareholders
49 LO 1 Redemption to pay death taxes Unchanged 49
50 LO 1 Redemption to pay death taxes: stock of two Unchanged 50
corporations
51 LO 1, 2 Disproportionate redemption: consequences Unchanged 51
to shareholder and effect on E & P
52 LO 2 Effect of redemption on corporation: E & P Unchanged 52
adjustment and treatment of redemption
expenses
53 LO 3 Section 306 stock: sale and redemption Unchanged 53
54 LO 3 Redemption through use of related Unchanged 54
corporations
55 LO 1, 2, 4 Liquidations and redemptions compared: Unchanged 55
recognition of loss by corporation and
shareholder
56 LO 4 Complete liquidation: distribution of property Unchanged 56
subject to liability
57 LO 4 Related-party loss limitation: not pro rata Unchanged 57
distribution of property, tax consequences
to corporation and shareholder
58 LO 4 Built-in loss limitation: no tax avoidance Unchanged 58
purpose
59 LO 4 Built-in loss limitation: distribution and tax Unchanged 59
avoidance purpose with basis step-down
60 LO 4 Complete liquidation: related-party loss Unchanged 60
limitation
61 LO 4 Complete liquidation: disqualified property Unchanged 61
and built-in loss property
Status: Q/P
62 LO 4 Complete liquidation: tax consequences to Unchanged 62

corporation and shareholder when
property distributed with liability
63 LO 4 Complete liquidation: tax consequences to Unchanged 63
shareholder when installment notes
distributed
64 LO 4, 5 Liquidation of subsidiary: distribution of loss Unchanged 64
property to minority shareholder
65 LO 4, 5 Liquidation of subsidiary: gain and loss Unchanged 65
properties, minority shareholder
66 LO 5 Liquidation of subsidiary: indebtedness of Unchanged 66
subsidiary to parent
67 LO 5 Section 338: election requirements Unchanged 67
68 LO 5 Section 338: tax consequences to parent and Unchanged 68
subsidiary
Status: Q/P
Research Present in Prior
Problem Topic Edition Edition
1 Effect of filing a late family attribution waiver Unchanged 1

agreement
2 Charitable contribution of § 306 stock Unchanged 2
3 Complete termination redemption: waiver of family New
attribution
4 Constructive liquidation Unchanged 4
5 Internet activity Unchanged 5
6 Internet activity Unchanged 6
Proposed solutions to the Research Problems are found in the Instructor's Guide.
CHECK FIGURES
38.a. Teal taxable gain of $250,000; Grace 52. E & P reduced by $300,000; $13,000
dividend income of $400,000. redemption expenses not deductible;
38.b. Teal taxable gain of $250,000; Grace $18,500 interest deductible.
$400,000 of dividend, subject to the 53.a. No tax consequences other than
dividends received deduction. allocation of stock basis.
38.c. Teal taxable gain of $250,000; Grace 53.b. Ordinary income of $75,000; $20,000
capital gain of $310,000. basis to common stock.
38.d. Teal taxable gain of $250,000; Grace 53.c. Dividend income of $75,000; $20,000
capital gain of $310,000. basis to common stock; E & P reduced
38.e. Teal no preference; Grace prefers option $75,000.
b., if corporation; option c., if individual. 54. Martin dividend income of $300,000.
39.a. $15,000. 55.a. Dove $40,000 loss not recognized; Julia
39.b. $22,500. $15,000 loss not recognized and basis in
40.a. $34,000. land of $260,000.
40.b. $10,200. 55.b. Dove $40,000 loss not recognized; Julia
41.a. $50,000. $15,000 loss recognized and basis in land
41.b. $3,000. of $260,000.
41.c. Choose qualifying stock redemption. 56.a. $270,000 LTCG.
42.a. $50,000. 56.b. $240,000 LTCG.
42.b. $0. 57. Mulberry $75,000 loss not recognized;
43.a. 1,350 shares. Anar $50,000 gain recognized and basis
43.b. 1,000 shares. in land of $575,000.
43.c. 1,400 shares. 58. $290,000.
44.a. $225,000 dividend income. 59. $175,000.
44.b. $270,000 LTCG. 60. Pink should either distribute the land to
45. 231 minimum shares; Lana $184,800 Paul or sell it and distribute the cash.
LTCG; Stork $196,350 reduction in 61. Pink should either distribute the land to
E & P. Paul or sell it and distribute the cash.
46.a. No. 62. Scarlet LTCL of $35,000; Jake LTCG of
46.b. Yes. $80,000 and basis in land of $390,000.
46.c. Yes. 63. Recognize $90,000 gain in the year of
46.d. No. liquidation, and $72,000 gain with each
47.a. Lori dividend income of $600,000; note collection.
Swan reduces E & P by $600,000; 64. Magenta no gain recognized on
Robert capital gain of $515,000. distribution to Fuchsia, $25,000 loss not
47.b. Robert capital gain of $515,000; recognized on distribution to Marta;
Swan reduces E & P by $500,000. Fuchsia no gain or loss recognized and
48.a. Sultan recognized gain of $300,000; basis of $620,000; Marta $20,000 gain
Turquoise dividend income of $350,000; recognized and basis of $50,000.
Lime recognizes gain of $200,000. 65.a. Ivory no gain or loss recognized;
48.b. Dividend income of $350,000 to Sultan Gold no gain or loss recognized and
and Turquoise; Lime recognizes gain of $80,000 basis in inventory; Imelda
$275,000. $25,000 gain recognized and $200,000
49. No gain or loss on $1 million of basis in equipment.
distribution (§ 303). Dividend income on 65.b. Ivory $120,000 gain recognized; Gold no
$1.5 million of distribution. gain or loss recognized and $350,000
50. No gain. basis in equipment; Imelda $25,000
51.a. Tammy dividend income of $75,000; recognized gain and $200,000 basis in
Broadbill E & P reduced by $75,000. inventory.
51.b. Tammy LTCG of $67,500; Broadbill
E & P reduced by $75,000.
66. Green recognizes no gain; Orange 68.a. Amazon recognized gain of $600,000;
recognizes $50,000 gain. tax of $204,000; new basis in assets of

67. Qualified stock purchase May 2, 2014; $1.4 million. Auk no tax consequences.
file election by February 15, 2015. 68.b. Amazon no gain or loss recognized. Auk
no gain or loss recognized; basis in assets
of $1.4 million.
DISCUSSION QUESTIONS
1. In a sale of stock to a third party, the shareholder’s ownership interest in the corporation is diminished,
and such dispositions result in sale or exchange treatment. In a stock redemption, however, a
shareholder’s ownership interest in the corporation may be unaffected as a result of the redemption.
This is particularly true where the stock of the corporation is solely owned or owned entirely or
predominately by related parties. It is this possibility of little or no diminishment in ownership interest
in a stock redemption that gave rise to the qualifying stock redemption rules. In those cases where a
shareholder’s ownership is sufficiently diminished as a result of a stock redemption, sale or exchange
treatment is the result. However, if a shareholder’s ownership is relatively unaffected as a result of a
stock redemption, the transaction has the same effect as a dividend distribution and is taxed as such.
2. Under § 317(b), a stock redemption occurs when a “corporation acquires its stock from a shareholder
in exchange for property, whether or not the stock so acquired is cancelled, retired, or held as treasury
stock.”
3. • Whether Louis or Mari have a preference for personally acquiring the Cerise stock or for a stock
redemption or for a sale to a third party.
• Whether Louis or Mari have the financial resources to acquire the Cerise stock.
• If Louis or Mari do acquire the Cerise stock, their basis in the shares.
• Whether Cerise Corporation has the financial resources, including the ability to issue its own notes,
to fund a stock redemption.
• If Chao has a preference for a cash transaction, whether Cerise has sufficient cash available for
such a distribution or property that can be sold to fund a distribution.
• If Cerise must sell property to finance a redemption, what property should be sold and the tax
consequences resulting from such a sale?
• If property can be distributed in the redemption, whether Cerise has property suitable for a
distribution and the tax consequences from such a distribution.
• If property is distributed pursuant to a redemption, Chao’s basis and holding period for such
property.
• The effect of any property sale and redemption distribution on Cerise’s E & P.
• The tax treatment of any expenditures incurred in a redemption of Chao’s shares, including interest
expense related to a debt-financed redemption.
• Whether there is a market for a sale of the stock to a third party.
4. Brandi’s redemption satisfied the terms of one of the qualifying stock redemptions and was taxed as a
sale or exchange. That is, $23,250 = 15% (LTCG tax rate) × $155,000 LTCG [$200,000 (amount
realized) – $45,000 (basis in stock)]. Yuen’s redemption, however, failed to qualify for sale or exchange
treatment and, instead, the entire distribution was taxed as a dividend: $30,000 = 15% (dividend tax
rate) × $200,000.
5. Corporate shareholders normally prefer dividend income treatment for a redemption (i.e., nonqualified
stock redemption) because the dividends received deduction available to such taxpayers minimizes the
resulting taxable income. Also, corporate taxpayers do not receive preferential tax rate treatment for
dividend and long-term capital gain income.
6. The statement is correct. A qualifying stock redemption is treated as a sale or exchange; thus, the
redemption results in a realized and recognized loss of $20,000 [$80,000 (amount realized) – $100,000
(stock basis)]. Section 267 disallows loss recognition in a qualifying stock redemption if the shareholder
owned (directly or indirectly) more than 50% of the corporation’s stock at the time of the redemption.
7. The statement is correct. A shareholder’s basis in property received in a nonliquidating distribution,

including both qualifying and nonqualified stock redemptions, is equal to the property’s fair market
value on the date of the redemption.
8. No. The tax treatment accorded a stock redemption is determined by the Code, not by state law. A
corporate distribution treated as a sale or exchange under state law may not satisfy any of the qualifying
stock redemption provisions of the Code.
9. Stock owned by a partnership is deemed to be owned proportionately by a partner. Stock owned by a

partner is deemed to be owned in full by the partnership.
10. No. In general, for purposes of the qualifying stock redemption provisions, the stock attribution rules
apply in determining a shareholder’s ownership interest before and after a redemption. However, the
attribution rules do not apply in the case of partial liquidations or redemptions to pay death taxes.
Further, the family attribution rules can be waived in the case of certain complete terminations.
11. A corporate distribution in exchange for stock qualifies as a not essentially equivalent redemption if
there is a “meaningful reduction” in the shareholder’s ownership after the redemption. The “meaningful
reduction test” is applied whether the stock redeemed is common stock or preferred stock. A decrease
in the redeeming shareholder’s voting control appears to be the most significant indicator of a
meaningful reduction, but reductions in the rights of redeeming shareholders to share in corporate
earnings or to receive corporate assets upon liquidation are also considered. If a shareholder continues
to have dominant voting control after a redemption, there probably will not be a “meaningful reduction”
in the shareholder’s ownership in the corporation. The § 318 attribution rules apply in determining
whether there has been a meaningful reduction.
12. The basis of shares redeemed in a nonqualified stock redemption attaches to the shareholder’s
remaining stock basis or, if that shareholder has no remaining direct stock ownership, to stock the
shareholder owns constructively.
13. To qualify as a disproportionate redemption, the shareholder’s ownership interest in the corporation
after the redemption must be:
• less than 80% of the ownership interest before the redemption, and
• less than 50% of the total combined voting power of all classes of stock entitled to vote.
The stock attribution rules apply in determining the shareholder’s ownership interest before and after
the redemption.
14. • Barry’s basis in the property transferred in the § 351 transaction and the basis in his stock.
• If Barry transferred property in the § 351 transaction with a built-in loss and if so, whether the
election was made to reduce the shareholder’s stock basis in lieu of the basis step-down
applicable to Pheasant.
• Whether the redemption qualifies for sale or exchange treatment.
• Whether Barry is related to any shareholder of Pheasant Corporation.
• If Barry is related to a shareholder of Pheasant, will he continue employment with the

corporation?
• Barry’s basis and holding period in the property received in the redemption.
• Pheasant’s E & P at the time of the distribution.

• Whether Pheasant has a recognized gain or an unrecognized loss as a result of the property
distribution.
• The effect of the distribution on Pheasant’s E & P.
• Whether Pheasant incurred any (nondeductible) redemption expenditures as a result of the

distribution.
15. Unless Lauren satisfies the requirements for the family attribution waiver, she is deemed to own the
shares owned by Brett, or 100% of the Viridian shares outstanding after the redemption. Such a level
of ownership would not satisfy any of the qualifying stock redemption provisions for sale or exchange
treatment. If Lauren satisfies the requirements of the family attribution waiver (e.g., no prohibited
interest held during the 10-year post-redemption period), the redemption would qualify for sale or
exchange treatment as a complete termination redemption. Lauren’s current employment with Viridian
Corporation, as president and chair of the board of directors, would constitute prohibited interests for
purposes of the family attribution waiver. As such, Lauren would have to resign from those positions
as a condition for qualifying the redemption for sale or exchange treatment.
16. In determining whether a distribution is not essentially equivalent to a dividend for the partial
liquidation rules, the test is applied at the corporate level (rather than the shareholder level, as is the
case of a not essentially equivalent redemption). The test requires a genuine contraction of the
corporation’s business and is based on the facts and circumstances of each case. A safe-harbor rule, the
termination of a business test, will satisfy the not essentially equivalent to a dividend requirement. To
qualify for the termination of a business test, the distribution must consist of the assets (or the proceeds
from the sale of the assets) from a trade or business that was actively conducted throughout the five-
year period ending on the date of the distribution. In addition, the corporation must continue to actively
conduct another five-year-old trade or business immediately after the distribution. Finally, neither of
the active businesses must have been acquired in a taxable transaction within that same five-year period.
17. • Whether Brown operated the discontinued business and one other business for the entire five-year
period preceding the distribution.
• Whether Brown would recognize gain or loss on the distribution or sale of the assets. If the assets
are sold, whether any would be sold to related parties.
• Whether Brown would incur any expenses with respect to any sale of assets or distribution to
shareholders.
• Brown’s E & P before and after any distribution.
• Whether there will be a redemption of stock from the shareholders and, if so, whether the
redemption would be pro rata with respect to the shareholders.
• The shareholders’ basis in their Brown stock before and after any distribution.
• Whether any of the shareholders are corporate taxpayers.
• The shareholders’ basis in any assets received in a distribution.
18. A redemption to pay death taxes is applicable to stock of a corporation that is included in the gross estate
of a decedent and whose value exceeds 35% of the value of the adjusted gross estate. In determining the
35% requirement, stock of two or more corporations is treated as the stock of a single corporation if 20%
or more in value of the outstanding stock of each corporation is included in the decedent’s gross estate.
Sale or exchange treatment is available under § 303 to the extent of the sum of the estate’s death taxes and
funeral and administration expenses.
A redemption to pay death taxes is treated as a sale or exchange of the stock for the estate (shareholder).
Because the estate’s basis in the redeemed stock is stepped up (or down) to fair market value at death
(or alternate valuation date, if elected), there is generally no gain (or loss) recognized by the estate in a
§ 303 redemption. If property is received in the redemption, the estate’s basis in the property is its fair
market value on the date of the redemption. The property’s holding period begins on the date of the
redemption.
The distributing corporation recognizes gain (but not loss) on any distribution of property pursuant to
a redemption to pay death taxes. The corporation’s E & P is reduced by an amount not in excess of the
ratable share of the E & P attributable to the stock redeemed. No deduction is allowed for any
expenditures incurred in connection with the redemption, with the exception of interest expense related
to the redemption that is otherwise deductible.
19. • Valuation of Angie’s estate.
• Whether the executor should elect the alternate valuation date.
• Whether Angie’s lifetime gifts to Ann included stock in Bluebird Corporation and, if so, the facts
surrounding that transfer (e.g., dates, motivation).
• Whether a redemption of the estate’s shares in Redbird Corporation will qualify under § 303.
• Whether a redemption of the estate’s shares in Bluebird will qualify under § 303 (redemption to
pay death taxes) or § 302 (complete termination redemption).
• If a redemption of Bluebird stock is advantageous, whether noncash property should be distributed

in the redemption and, if so, which property.
• Whether Ann should purchase the estate’s shares in Bluebird.
• Effect of Angie’s lifetime gifts for her estate as to the unified tax credit.
• Marital and other estate deductions.
• Due date of estate tax return.
• Income tax return for estate.
20. Corporate distributions in redemption of stock are governed under § 311. Under that provision, gains,
but not losses, are recognized on the distribution of noncash property when the property’s fair market
value differs from its basis. As such, the distribution of Property A would result in a $75,000 recognized
gain [$150,000 (fair market value) – $75,000 (basis)] to Indigo. The distribution of Property B would
result in a $45,000 disallowed loss [$150,000 (fair market value) – $195,000 (basis)]. Indigo could
distribute the cash, as neither gain nor loss is recognized by Indigo on a cash distribution. However, a
sale of Property B to recognize the $45,000 loss and a distribution of the sales proceeds to Linda
produces more favorable results. (To avoid the loss disallowance rules of § 267, the sale must not be to
a related party.)
21. • Whether Pink Corporation should distribute a cash dividend to Donna to enable her to buy Steven’s
stock and, if so, the tax consequences to Donna.
• Whether Pink Corporation should redeem Steven’s stock and, if so, the tax consequences to Steven.
• Effect of any dividend or redemption distribution on Pink Corporation’s E & P.
• Deductibility of any expenditures incurred by Pink Corporation in connection with a stock

redemption.
• Whether Donna and Steven live in a community property state.
• How to sell the residence and utilize the exclusion provision of § 121.
• Tax consequences of alimony, child support, and the property settlement.
• Dependency deductions for the children.
• Deductibility of legal costs associated with the divorce.
• Donna’s and Steven’s filing statuses.
22. In a qualifying stock redemption, the corporation’s E & P is reduced by the lesser of the amount of the
distribution or the amount equal to the ratable share of the corporation’s E & P attributable to the stock
redeemed. In a nonqualified stock redemption, the corporation’s E & P is reduced by the amount of the
dividend distribution.
23. In a sale of § 306 stock to an unrelated party, the shareholder generally recognizes ordinary income to
the extent of the stock’s fair market value on the date of the stock dividend. The preferential tax rate
for dividends applies to this ordinary income. If the amount realized in the sale exceeds the ordinary
income taint, the excess is applied against the basis of the preferred stock. No loss is recognized on a
sale of § 306 stock; instead, any unrecovered basis in the preferred stock attaches to the basis of the
shareholder’s common stock. A sale of § 306 stock has no effect on the issuing corporation’s E & P.
24. Section 304 applies to sales of stock of one corporation to a related corporation. The corporations are
related corporations if a shareholder owns, directly and indirectly, at least 50% of the stock (voting or
value) of such corporations.
25. Shareholders might decide to liquidate a corporation for a number of reasons, including one or more of
the following:
• The corporate business has been unsuccessful.
• The shareholders wish to acquire the corporation’s assets.
• A third party wishes to acquire the corporation’s assets. A sale of the assets to the third party could
be followed by the distribution of the sales proceeds to the shareholders in liquidation of the
corporation. Alternatively, the third party could purchase the shareholders’ stock and then liquidate
the corporation to acquire the assets.
26. Corporate losses are disallowed in complete liquidations in four situations. First, a loss is disallowed
on the distribution of property to a related person if such distribution either is not pro rata or it consists
of disqualified property. Second, a loss is disallowed on the sale, exchange, or distribution of property
that was contributed to the corporation (in a § 351 or contribution to capital transaction) with a built-in
loss (fair market value less than basis, after application of the basis step-down rules) shortly before the
adoption of a plan of liquidation. This disallowance applies when the corporation’s acquisition of the
property was part of a plan whose principal purpose was to recognize a loss on that property by the
liquidating corporation. The last two disallowance rules apply in the case of a liquidation of a subsidiary
corporation. In liquidation, a subsidiary corporation does not recognize losses on the distribution of
property to its parent shareholder. Similarly, losses on the distribution of property to the minority
shareholders of a liquidating subsidiary also are not recognized.
27. For tax purposes, a liquidation exists when a corporation ceases to be a going concern. The corporation
continues solely to wind up affairs, pay debts, and distribute any remaining assets to its shareholders.
Retention of a nominal amount of assets to pay remaining debts and preserve legal status will not defeat
liquidation status. Legal dissolution under state law is not required for a liquidation to be complete for
tax purposes.
28. Disqualified property is property that is acquired by the corporation in a § 351 or contribution to capital
transaction during the 5-year period ending on the date of the liquidating distribution.
29. A tax avoidance purpose is presumed if the property was acquired by the corporation within two years
of the adoption of a plan of liquidation. This presumptive rule can be rebutted if there was a clear and
substantial relationship between the property and the corporation’s business(es). The built-in loss rule
will apply only in very limited cases where the corporation acquired the property in question more than
two years prior to the adoption of the plan of liquidation.
30. The general rule under § 331 provides for sale or exchange treatment to the shareholder. The
shareholder is treated as having sold his or her stock to the corporation being liquidated. Thus, the
difference between the fair market value of the assets received from the corporation and the adjusted
basis of the stock surrendered is the gain or loss recognized. Typically, the stock is a capital asset in the
hands of the shareholder and capital gain or loss results. The basis of property received in a liquidation
is the property’s fair market value on the date of the distribution.
A shareholder’s gain on the receipt of installment notes obtained by a liquidating corporation on the sale of
its assets may be deferred to the point of collection under § 453(h). The shareholder must allocate his or her
stock basis among the notes and any other assets received from the corporation. With respect to the notes
received, the shareholder may defer gain until the notes are collected. (Under § 453(d), the shareholder can
elect out of the installment method.) The interest element on the notes is accounted for separately.
31. A parent corporation recognizes no gain or loss in a § 332 liquidation of a subsidiary. The parent takes
a basis in the property received equal to the subsidiary’s basis in such property. In addition, the parent’s
holding period in the property includes that of the subsidiary. Other tax attributes of the subsidiary (e.g.,
net operating loss carryover, E & P) also carry over to the parent corporation. The parent’s basis in its
subsidiary stock is eliminated. (If the parent receives property from the subsidiary in satisfaction of
indebtedness, the parent recognizes gain or loss.)
32. a. The parent corporation must own 80% or more of the subsidiary’s voting stock and 80% or
more in value of all its other stock (other than nonvoting preferred) at the time the plan of
liquidation is adopted and until all property is distributed, or the liquidation will not qualify
under § 332.
b. The subsidiary must distribute all its property in complete redemption of all its stock within the
taxable year in which the first distribution is made or within three years from the close of the
tax year in which the first distribution occurred pursuant to the adoption of a plan by the
corporation. Otherwise, the liquidation will not qualify under § 332.
c. The subsidiary must be solvent, or § 332 will not apply. If the subsidiary is insolvent, the parent
corporation will have an ordinary loss deduction for its worthless stock in the subsidiary.
33. A subsidiary corporation recognizes gain (but not loss) on the distribution of property to a minority
shareholder pursuant to a liquidation otherwise governed by § 332. The minority shareholder recognizes
gain or loss equal to the excess of the fair market value of the property received over the shareholder’s
basis in the subsidiary stock. The basis of the property received by the minority shareholder is the
property’s fair market value on the date of the distribution.
34. When § 332 applies, the subsidiary does not recognize gain or loss upon the transfer of property to the
parent. This is the case even if the transfer satisfies a debt. The parent corporation may recognize a gain
or loss on the receipt of property in satisfaction of indebtedness, however, equal to any difference
between the fair market value of the property and the parent’s basis in the indebtedness.
35. Section 338 can produce beneficial results to the parent corporation when the basis in the subsidiary
stock is greater than the subsidiary’s basis in its assets. In such cases, a § 338 election will result in a
step-up in basis for the subsidiary’s assets. If the subsidiary is liquidated, the parent would then acquire
the subsidiary’s assets with the stepped-up basis. Detrimental results might occur from a § 338 election
if the parent’s basis in the subsidiary stock is less than the subsidiary’s basis in its assets. In such cases,
the subsidiary’s assets will receive a step-down in basis. If the subsidiary is liquidated, the parent would
then acquire the subsidiary’s assets with the stepped-down basis.
In a § 338 election, the subsidiary is treated as having sold all of its assets as of the qualified stock
purchase date at their fair market value. In determining the advantages of a § 338 election, consideration
must be given to the gain or loss recognized by the subsidiary in this deemed sale. Loss (e.g., net
operating loss) or tax credit (e.g., business tax credit) carryovers of the subsidiary as of the qualified
stock purchase date can be used to minimize the impact of the deemed asset sale.
36. If a parent makes a § 338 election, the subsidiary is treated as having sold its assets on the qualified
stock purchase date for a value that is determined with reference to the parent’s basis in the subsidiary
stock plus any liabilities of the subsidiary. The deemed sale of assets results in gain or loss recognition
to the subsidiary corporation. The subsidiary is then treated as a new corporation that purchased those
assets on the day following the qualified stock purchase date for a similarly computed value. The
deemed purchase results in a new stepped-up (or -down) basis for the subsidiary’s assets. The new basis
in the subsidiary’s assets carries over to the parent corporation if the subsidiary corporation is
subsequently liquidated.
37. Under the general nonrecognition rules, the parent corporation recognizes no gain or loss on liquidating
distributions from the subsidiary, takes a carryover basis and holding period in the assets received, and
acquires the other tax attributes (e.g., net operating loss carryover, E & P) of the subsidiary (subject to
the carryover rules of § 381). The parent’s basis in the stock of the subsidiary disappears.
The tax consequences to a parent corporation in a subsidiary liquidation that follows a § 338 election
are governed by the same rules as above, but substantive differences will result due to the § 338 election.
The parent corporation still recognizes no gain or loss on liquidating distributions from the subsidiary.
Also, the parent takes a carryover basis and holding period in the assets received. However, these bases
will reflect the stepped-up (or -down) basis resulting from the subsidiary’s deemed asset sale and
repurchase under § 338. Further, the holding period of the assets will begin on the date of the qualified
stock purchase. The parent will acquire the other tax attributes (e.g., net operating loss carryover, E &
P) of the subsidiary, but those attributes are likely to be nominal in amount as the subsidiary is treated
as a new corporation as of the day following the qualified stock purchase date. The parent’s basis in the
stock of the subsidiary disappears.
PROBLEMS
38. a. Teal Corporation would have a taxable gain of $250,000 on the property distribution [$400,000
(fair market value) – $150,000 (basis in property)]. The gain would be ordinary or capital
depending on the type of property distributed. The E & P of Teal Corporation would be
increased by $250,000 (the amount of gain to Teal) and decreased by $400,000 (the FMV of
the property distributed). Teal’s E & P also would be decreased by the amount of tax due on
the gain recognized. Grace would have dividend income of $400,000 and a basis in the property
of $400,000.
b. The tax consequences to Teal Corporation would be the same as in option a. Grace Corporation
would have dividend income of $400,000, but only 30% of the $400,000, or $120,000, would
be taxed to Grace. Because Grace Corporation has a less than 20% ownership interest in Teal
Corporation, the 70% dividends received deduction is applicable. Grace Corporation would
have a basis of $400,000 in the property.
c. The tax consequences to Teal Corporation would be the same as in option a. except that Teal’s
E & P is reduced by the ratable share of its E & P attributable to the stock redeemed (percentage
not provided). Grace would have a capital gain of $310,000 [$400,000 (value of the property)
– $90,000 (basis in stock)] and a basis of $400,000 in the property received.
d. The tax consequences to Teal Corporation would be the same as in option c. Grace Corporation
would have a capital gain of $310,000 [$400,000 (value of the property) – $90,000 (basis in
stock)] and a basis of $400,000 in the property received.
e. Assuming Grace is an individual, she would choose the qualifying stock redemption (option
c.). If the distribution is a qualifying stock redemption, she has a capital gain of $310,000. If
the distribution is a dividend, as in option a., she would have dividend income of $400,000.
Her basis in the property received is the same whether the transaction is a dividend or a
qualifying stock redemption. If Grace is a corporation, it would prefer that the distribution be
a dividend because only 30% of the dividend would be taxed (option b.). Teal Corporation
itself would have no preference because the tax consequences from the transaction are the same
under each option.
39. a. Julio’s income tax liability would be $15,000, computed as follows: $150,000 (amount
realized) – $50,000 (basis in the 1,000 shares redeemed) = $100,000 (long-term capital gain)
× 15% = $15,000.
b. Julio’s income tax liability would be $22,500, computed as follows: $150,000 (dividend) ×
15% = $22,500.
40. a. Tax liability for a corporate shareholder would be $34,000, computed as follows: $150,000
(amount realized) – $50,000 (basis in the stock) = $100,000 (long-term capital gain) × 34% =
$34,000. Corporations do not receive a preferential tax rate on long-term capital gains.
b. Tax liability for a corporate shareholder on a $150,000 dividend from a corporation in which
it has a 25% interest would be $10,200, computed as follows: $150,000 (dividend) – $120,000
[80% (dividends received deduction) × $150,000] = $30,000 × 34% = $10,200. Corporations
do not receive a preferential tax rate on dividend income.
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D 7
2 July
3256 Frenchy D
F 13
13 July
3543 Fielding A
E 18
16 Aug
5487 Fliestine S
C 13
Felps Dan’l, 8 Aug
6804
(negro) H 25
Aug
7167 Flanigan M 2 I
29
14 Sept
8536 Faunton H
F 12
1 Sept
9154 Flanery M Cav
H 18
3 Sept
9725 Frum E “
C 25
16 Sept
9983 Flarety O
- 29
14 Oct
10655 Fenall J
G 11
14 Oct
10839 Flanagan P Cav
D 13
19 Oct
11402 Fritz A, S’t
A 24
4 Dec
12312 Foster J
H 19
Mar
272 Gilligan Mat, Cor 1 I
31
June
1639 Gardener C Sig - -
5
16 July
2801 Gutterman S, S’t
D 2
4977 Gray Wm 18 Aug
C 7
11 Aug
6182 Gale Walter
F 19
4 Aug
7220 Gulvere David
C 29
11 Sept
8057 Griffith S
F 7
4 Sept
8671 Gunter Jno Cav
- 13
1 Sept
8857 Grace Thos
B 15
5 Sept
9851 Gilbert A
K 27
19 Nov
12066 Getts F
E 16
76 Aug
7335 Golton R
B 30
11 Apr
397 Hatch T C
A 6
2 Apr
533 Halbert F
H 13
5 June
1547 Halpin P Art
H 1
16 June
1585 Haney H
D 3
4 June
1608 Hurman J H Cav
E 4
16 June
2096 Hendricks J
D 17
16 June
2209 Hogan M
A 20
2706 Henry Wm 2 June
B 30
July
2730 Hurley D Mar - -
1
16 July
2987 Hulit Wm
D 7
17 July
3753 Hill Geo
H 22
17 July
3893 Hopkins W, (neg)
C 24
16 July
4429 Hill D S, (negro)
C 31
15 Aug
7238 Heddington W
F 29
15 Aug
7405 Horsham J R
G 31
13 Sept
8004 Halley J
B 6
19 Sept
9104 Hook H
F 18
14 Sept
9155 Heir J
A 18
12 Sept
9665 Hildreth Jas
- 24
12 Sept
9918 Haney J
C 28
13 Sept
10054 Hasler C 64
M 30
Oct
10439 Hirchfield G Mar - -
7
15 Oct
10857 Harman J
E 14
2 Oct
11136 Hamilton S SS
D 19
12369 Hill M A 2 Jan 65
G 1
35 Feb
12601 Hoit E, (negro)
H 6
15 Oct
10322 Hamman W H 64
F 3
15 Aug
5532 Imhoff I
E 13
14 Sept
7647 Ireland Geo
E 3
4 Oct
10472 Ireson I Cav
A 11
2 Sept
8125 Johnson P Bat
- 8
1 Sept
8366 Jones W Art
K 10
1 Oct
10319 Jones C B Cav
H 3
18 Nov
11923 Jerald W H, S’t
F 8
1 Apr
495 Kingeny J
K 12
16 May
912 Kelly Jno
C 5
15 June
1662 Kain P F, S’t
A 6
2 July
3256 Kenley D
F 13
18 July
3341 Kerkney F
F 15
15 July
3685 Kilbride J
F 21
4245 Kane Wm 18 July
H 29
July
4266 Kalkrath C 3 I
29
4 July
4271 Kelly D
H 29
15 Aug
4694 Kester J
F 4
4 Aug
5640 Kay Robert
F 14
Aug
5643 Kelly J Mar - -
14
19 Aug
6271 Kochel J, Cor
G 20
Aug
6577 Kelly Wm 9 I
23
7 Aug
6764 King I
K 25
1 Sept
7465 Kinney G W Bat
D 1
1 Sept
8261 Klinty H Art
K 9
14 Sept
8490 Kricks F
C 11
16 Sept
8527 Kripp J
D 12
11 Sept
9082 Knapp C
A 18
15 Oct
11268 Kain Pat
A 21
2 Nov
11767 Kelly J S
D 3
12 Nov
11949 Kennedy J
A 10
12205 Kahl Chas Art 2 Dec
M 1
2 Jan
12532 Kemp J W 65
K 27
6 Mar
55 Love Wm, S’t 64
F 17
16 June
2282 Larreby G
D 20
19 July
2774 Little J
E 21
16 July
3999 Lackey J
B 26
10 Aug
4453 Langstaff R
F 1
4 Aug
5711 Lake Horace Cav
K 15
18 Aug
5891 Lynch B
E 16
12 Aug
6116 Lattin E
A 19
11 Aug
6300 Lawrence C
E 20
Aug
6352 Lyons E Sig - -
21
19 Aug
6561 Little R
F 23
14 Sept
9732 Larqdell Wm, S’t
A 25
4 Oct
10317 Louby O Cav
H 3
Lockwood H, 8 Oct
10379
(neg) D 5
11038 Lyons R Cav 1 Oct
E 17
18 Oct
11543 Lyman O S
A 27
8 Nov
11973 Lewis Wm P
B 12
6 Mar
180 McCoy Augustus
M 26
6 Mar
267 McClellan J Cav
D 31
12 May
828 Mason C H
I 1
12 May
948 Murphy D
B 8
13 May
1012 McEvers T L
C 10
3 May
1043 McGuire J
C 12
May
1332 Murray Thos Art 1 I
24
May
1471 Mulhall Peter, S’t Mar - -
30
12 June
1823 Marze Jas
D 10
2 June
1946 McLaughlin J
H 14
June
1965 McConaghy P Mar - -
14
6 June
2444 Meadow Jno Cav 64
E 25
June
3054 Muller J Mar - -
30
6 July
2920 Miller C H Cav
E 5
3054 McKinney J Mar - - July
9
19 July
3083 Maloney B
B 9
14 July
3950 Merkill Peter
H 25
11 Aug
4712 Murch Wm
C 4
18 Aug
4823 McClintock J S
H 5
Aug
4863 Martin M Mar - -
6
1 Aug
5303 Martin J Cav
K 11
12 Aug
5364 McCann B
B 11
1 Aug
5456 Michols R Cav
K 12
17 Aug
5581 McLean P
C 14
1 Aug
5769 McCoslin Robt Art
B 15
4 Aug
6073 McDonald Cav
E 18
11 Aug
6081 McClair R
G 18
12 Aug
6313 Munson C
D 20
4 Aug
6407 Mulhern C Cav
C 22
15 Aug
6515 Mantle J M, Cor
F 22
6851 Marston B SS 51 Aug
G 25
Aug
6973 McKinley E W Mar - -
27
12 Aug
7341 McGuire J
D 30
18 Sept
8293 Munn W
H 9
4 Sept
8473 McGinnis A Art
E 11
13 Sept
9110 Montgomery C
G 18
Sept
9231 McCoy J M, S’t Mar - -
19
2 Sept
9368 Miller H Art
- 20
18 Sept
9472 Morris G J
I 21
18 Sept
9830 McDermott H
E 26
15 Oct
10135 Manning J
A 1
4 Oct
10321 McCoy J
F 3
15 Oct
10457 Mills A
G 7
14 Oct
10554 McCord G
E 9
2 Oct
10855 McGee P, Cor
- 13
17 Oct
11008 Murray Jas
G 16
Nov
12148 Mizner W Sig -K
24
12151 Moran J 4 Nov
F 24
12 Aug
7341 McGuire J
D 31
17 Dec
12364 McGorren J
C 31
4 July
2876 Northrup H E
H 3
18 Aug
6803 Newcombe Jno
G 20
12 Aug
6954 Nichols H, Cor
A 26
15 Oct
10240 North Jacob
A 3
6 Jan
12386 Neise J 65
F 2
1 Apr
12833 Naff ——, Bugler Art
B 16
18 Mch
12790 Newel L
G 17
O’Reilly 3 June
2368 64
Theodore, S’t K 23
10 Aug
7036 Ott Jno
A 27
Nov
11846 Osrans J Cav 4 I
5
Apr
492 Partridge J W Sig - -
12
18 June
1607 Pace J F
C 4
1 June
1893 Pulliam Wm Cav
- 13
3219 Pigot J Mar - - July
12
July
3669 Ponter —— Art 1 I
18
40 Aug
4631 Pearson S C
C 3
1 Aug
5309 Pratt C E Art
M 11
5 Aug
5729 Pike Wm, Cor Cav
G 15
19 Aug
5731 Poulton Henry
A 15
18 Aug
6392 Page J E
B 21
14 Aug
7008 Phillips C
D 27
19 Aug
7267 Pruet Jas M
A 30
2 Aug
7311 Plummer G SS
D 30
June
2611 Preston Jno Mar - -
28
3 Sept
7752 Pratt J
B 3
1 Sept
9571 Post A Art
F 23
15 Oct
10951 Palmer Wm E
F 14
11 Oct
11170 Pattit J S
F 19
15 Nov
12142 Puck C 64
G 24
18 July
4022 Quinback J
G 26
11 Ross —— 19 Mch
A 5
14 Mch
194 Rooney Mark
F 27
13 April
404 Reardon D
G 6
April
702 Reynolds Edwd Mar - -
23
18 July
3355 Roney F J
E 15
5 July
3820 Ritzer Geo A Cav
H 23
6 July
4276 Robison W R “
H 30
18 Aug
4957 Rhodes A
B 7
2 Aug
5210 Rinkle Geo Cav
G 10
10 Aug
5934 Ronke J
D 17
2 Aug
7151 Richards Theo Cav
D 29
18 Sept
8438 Rogers Wm
G 14
4 Sept
9268 Reynolds D Cav
C 19
3 Oct
10792 Reilly J
B 2
16 June
2701 Rawson J
K 30
2 April
363 Striff Jno
F 2
1236 Shelton C 8 May
F 20
3 May
1253 Spaulding Wm Cav
B 21
5 May
1295 Scripter C E “
D 23
19 June
1647 Sweitzer M
H 5
15 June
1714 Smith H W
C 7
16 June
2073 Stoltz ——, S’t
C 17
16 June
2082 Smith Jas
D 17
13 June
2298 Styles J N
A 22
19 June
2550 Sumser J
G 27
13 July
3110 Spaulding Jas
B 10
13 July
3114 Skinner L
C 10
Smartkash C, 15 July
3838
Cor C 23
4 July
3978 Somers P Cav
C 26
1 July
4238 Seybert J S, Cor SS
H 29
4 July
4310 Smith Allen
H 30
18 Aug
4666 Striper M
D 4
16 Aug
5022 Sutgee F
C 8
5305 Sorg A Art 1 Aug
M 11
4 Aug
5393 Swagger H Cav
D 12
4 Aug
5801 Sisson J
D 15
15 Aug
6620 Slaughterback B
H 23
16 Aug
6833 Sutgen F
C 25
14 Aug
7377 Smith F
E 31
2 Sept
7606 Starr Darius, S’t SS
F 2
11 Sept
7874 Snider J
B 5
2 Sept
8839 Scott Jas H Cav
B 15
Sept
9215 Stansbury E Mar - -
19
15 Sept
9514 Souls J H
F 22
11 Oct
10214 Sullivan T
C 2
15 Oct
11144 Schroder F
C 19
8 Oct
11301 Smith J
D 22
14 Oct
11333 Stanton R
K 23
2 Oct
11664 Spencer J H
D 30
11690 Shortman J 14 Oct
E 31
16 Nov
12186 Streeter J
B 28
Dec
12211 Stanton C 2 I
2
13 Mch
92 Tooley Michael
G 21
17 April
489 Taylor Amos
H 12
18 June
2603 Thompson Wm
G 28
5 June
2662 Truman J Cav
D 29
14 July
3466 Tyson E S
B 17
Tredridge A, 13 Aug
4716
Musician - 4
18 Aug
7366 Taylor M D
E 31
18 Sept
7801 Turk H
H 4
1 Sept
8258 Thomas J Cav
D 9
6 Sept
8259 Trainer M
F 9
8 Sept
8279 Thomas L, negro
D 9
18 Sept
9115 Taylor E, Cor
I 18
11 Oct
11393 Topper J
B 24
1 Sept
7829 Unmuch C Art 64
K 4
3657 Volmore J 3 July
K 18
16 Aug
7042 Vancotten Wm
D 27
1 Aug
7135 Vickery Wm
H 28
16 Nov
12041 Van Buren W H
B 16
6 May
1259 Walker Wm
D 21
5 May
1299 Worster Chas B C
- 23
1 July
2752 White Thos
D 1
18 July
4023 Williams D
D 26
16 July
4248 Warner S
E 20
4 July
4306 Williams Jno
D 30
10 Aug
5425 Walmor ——
D 12
16 Aug
6125 Wickham G H
B 19
15 Aug
6637 Wills S
E 23
12 Aug
7048 Wright C S
C 27
12 Aug
7109 Wadsworth B H
C 28
2 Aug
7254 Warner H
D 30
9105 Whitney J W, Cor Cav 4 Sept
K 18
8 Sept
9131 White Samuel
F 18
Walker Jno, 8 Sept
9677
negro F 24
17 Sept
9854 Walter I
B 27
17 Oct
10355 Wigley E
C 5
8 Oct
10374 Waters ——, S’t
C 5
1 Oct
10756 Waldo J M Art
K 12
1 Oct
11137 Williams C Art
K 19
2 Oct
11395 Wizmaker G
M 24
15 Nov
12009 Wilson C W
A 14
6 Nov
12027 Wise G B
F 15
18 Aug
6496 Yarger A
- 22
1 Aug
7101 Young Robt Cav
K 28
2 Oct
10754 Young F B Art
M 12
19 Oct
11373 Young J C
A 23
17 Sept
7793 Zimmerman J
D 4
10 Oct
10423 Zing P, S’t
C 6
10450 Zimmerman M 14 Oct
I 7
Total 399.
UNITED STATES NAVY.
June
2619 Atkinson A, Nepsia 64
27
4698 Anker Geo, Norman Aug 4
Anderson C, Southfield Sept
8071
7
2919 Bradley Jno, “ July 3
3475 Broderick W July 17
5072 Bowers W H, W Witch Aug 8
12047 Boucher W, Shawsheen Nov 16
June
1914 Carnes Wm
18
June
2149 Conant G S, Southfield
18
June
2580 Carter W J, Montg’y
27
6201 Collins Thos, Southfield Aug 10
7144 Corbet E Aug 29
Sept
7508 Connor J
1
Sept
9544 Culbert J
23
164 Dillingham J N, Housa’c Mar 26
6437 Duffney J Aug 22
3086 Ellis J H, Columbine July 9
4134 Evans Jno, Shawsheen July 28
4462 Earl J H, Paym’r Stew’d Aug 1
5419 Foley Dan’l, Southfield Aug 12
4605 Green G C, Southfield Aug 3
8871 Goundy Thos Sept
15
1087 Heald W, Canandaigua Apr 14
1469 Hunter Jno, Seaman May 30
June
2215 Hilton Jno, Johana
20
3448 Hodges L, Norman July 17
3793 Hughes Benj, Wabash July 22
5875 Heald H H, Merchantm’n Aug 16
Sept
9284 Holas Thos, W’r Witch 64
19
1432 Jones Wm, Underwriter May 28
June
2178 Jones Theo, “
19
June
2206 Journeay Jno, Fireman
19
6417 Jackson J, Shawsheen Aug 22
Sept
8291 Johnson G P
9
Sept
8858 James F A
15
Sept
9392 Johnson M
20
10218 Joseph F Oct 2
602 Keefe Jno, Housatonic Apr 18
698 Kultz A T, Ward Apr 23
June
1546 Kelley Jas, Underwriter
1
3850 Kinney J, Water Witch July 24
7375 Lodi Jno Aug 31
2813 Lindersmith E, Montg’y July 3
4201 Lawton Jas, Ladona July 30

South Western Federal Taxation 2015 Corporations Partnerships Estates and Trusts 38Th Edition Hoffman Solutions Manual Full Chapter PDF

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South Western Federal Taxation 2015 Corporations Partnerships Estates and Trusts 38Th Edition Hoffman Solutions Manual Full Chapter PDF

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South-Western Federal Taxation 2015

Corporations Partnerships Estates and

Solution Manual: https://testbankpack.com/p/solution-manual-for-south-

Test Bank: https://testbankpack.com/p/test-bank-for-south-western-federal-

CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS

SOLUTIONS TO PROBLEM MATERIALS

1 LO 1 Why sale or exchange treatment limited to Unchanged 1

7 LO 1 Basis of property received in stock Unchanged 7

21 LO 1, 2, 6 Tax consequences of redemption to Unchanged 21

43 LO 1 Stock attribution rules Unchanged 43

62 LO 4 Complete liquidation: tax consequences to Unchanged 62

1 Effect of filing a late family attribution waiver Unchanged 1

recognizes $50,000 gain. tax of $204,000; new basis in assets of

7. The statement is correct. A shareholder’s basis in property received in a nonliquidating distribution,

9. Stock owned by a partnership is deemed to be owned proportionately by a partner. Stock owned by a

• Whether the redemption qualifies for sale or exchange treatment.

• Whether Barry is related to any shareholder of Pheasant Corporation.

• If Barry is related to a shareholder of Pheasant, will he continue employment with the

• Pheasant’s E & P at the time of the distribution.

• Whether Pheasant incurred any (nondeductible) redemption expenditures as a result of the

19. • Valuation of Angie’s estate.

• Whether the executor should elect the alternate valuation date.

• If a redemption of Bluebird stock is advantageous, whether noncash property should be distributed

• Whether Ann should purchase the estate’s shares in Bluebird.

• Marital and other estate deductions.

• Due date of estate tax return.

• Income tax return for estate.

• Effect of any dividend or redemption distribution on Pink Corporation’s E & P.

• Deductibility of any expenditures incurred by Pink Corporation in connection with a stock

• Whether Donna and Steven live in a community property state.

• Tax consequences of alimony, child support, and the property settlement.

• Dependency deductions for the children.

• Deductibility of legal costs associated with the divorce.

• Donna’s and Steven’s filing statuses.

• The corporate business has been unsuccessful.

• The shareholders wish to acquire the corporation’s assets.

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