C239 Topic 7-8-9 test questions and answers., Exams of Biology

Download C239 Topic 7-8-9 test questions and answers. and more Exams Biology in PDF only on Docsity! C239 Topic 7-8-9 test questions and answers Tax deferred under sect 351 - answer -One or More persons transfer property for stock -Immediately after the transfer these same shareholders control the corporation --Persons include individuals, corps, partnership, and fiduciaries --Property includes money tangible and intangible assets --property received other than stock is boot and will cause gain (not loss) --Control is 80% or more of the total combined voting power of all voting stock and 80% or more of total number of shares of each class of nonvoting stock Boot Received - answer -Gain recognied not to exceed lesser of gain realized or FMV of boot received -Allocate boot to each contributed property using the relative FMV of the properties -Character of gain is determined by type of property to which gain is allocated Tax basis of stock received - answer Cash + Tax basis of other property + Gain recognized - FMV of boot - Liabilities assumed Assumption of LIabilities - answer Taxpayer recognizes gain to extent of liabilities assumed exceed aggregate tax basis of properties transferred, allocate by character based on relative FMV of the assets -does not include liabilities which would give rise to a deduction Corporate consequences - answer No gain/loss on receipt of property in exchange for stock Company name Tax Deferred Acquisition - answer Tax deferral predicated on the seller receiving a continuing ownership interest in assets transferred in the form of equity in the acquiring corporation Continuity of Interest - answer Shareholders of target retain continuing ownership in the target assets or historic business through ownership of acquiring corporation stock -Regs provide example that continuity is maintained when target shareholders receive, in the aggregate, equity equal to 40% or more of the total value of consideration received Continuity of Business Enterprise - answer Acquiring corporation must continue the business of the target or use a significant portion of their assets -Does not apply to acquiring corporation, they can sell off their assets after reorganization Business Purpose Test - answer Acquiring corporation must show a significant business purpose for the transaction other than tax avoidance Type A Reorganization - answer Controlled by state law Know as statutory merger or consolidation One corporation acquires assets and liabilities of another in return for stock and/or cash Transaction satisfies the 3 judicial principles Meets state law to be a merger or consolidation No gain/loss rcvd by Target SH (unless cash rcvd) No gain/loss recognized by acquiring corp or target corp Upstream/Forward Reorganization - answer target is merged into acquiring Downstream/Reverse - answer target is the surviving entity Type B Reorganization - answer Stock for stock acquisition Acquiring corp must acquire 80% or more of target corp using solely voting stock of acquiring corp Even $1 can cause it to be fully taxable Rare except among small businesses -Nondeductible premiums on life insurance policies -penalties and fines -nondeductible portion of meal expense -entertainment expense -disallowed lobbying, dues, and political contributions -Decrease in cash surrender value of corporate owned life ins Noncash dividends - answer SH basis in noncash property is FMV as of date of distribution Noncash Dividends - Corps - answer Recognize gain (not loss) to the extent FMV exceeds tax basis If FMV is less than liabilities SH assumes, then FMV is the liability E&P is reduced (but not below zero) by -E&P basis of noncash depreciated property -FMV of noncash appreciated property -Liabilities assumed by SH on property Stock Dividends - answer Nontaxable if prorata distribution of common stock -does not change ownership %'s Overall basis does not change, but per share basis changes as spread over more shares Taxable if ownership %'s change, have the option or actually receive other property in the distribution Liquidations tax consequences - answer Corporate acquires all stock from all shareholders in exchange for "all" of its net assets Corporation ceases to do business File form 966 to inform IRS of intent to liquidate within 30 days after owners resolve to liquidate Nontaxable Liquidation Distributions - answer Liquidating corporation does not recognize gain/loss on tax-free distributions of property to an 80% corporate shareholder Liquidation expenses are deductible on final form 1120 Deferred or capitalized expenditures are deductible on final tax return