1. Legal dissolution under state law is required for a liquidation to be complete for tax purposes.
a. True
b. False
.
2. One similarity between the tax treatment accorded liquidating and nonliquidating distributions is with respect to a shareholder’s basis in property received in such distributions. For each type of distribution, the shareholder’s basis is the property’s fair market value on the date of distribution.
a. True
b. False
3. As a general rule, a liquidating corporation recognizes gains but not losses on the distribution of property in complete liquidation.
a. True
b. False
4. Liquidation expenses incurred by a corporation are generally deductible as § 162 trade or business expenses.
a. True
b. False
5. The related-party loss limitation applies to distributions to related parties and either the distribution is pro rata or the property distributed is disqualified property.
a. True
b. False
6. The builtin loss limitation in a complete liquidation does not apply to losses attributable to a decline in a property’s
fair market value after its transfer to the corporation.
a. True
b. False
7. The related-party loss limitation in a complete liquidation applies only to distributions of property while the built-in loss limitation can apply to a distribution or sale of property.
a. True
b. False
8. Pursuant to a liquidation, Coral Corporation distributes to Lucinda, a shareholder, land (basis of $90,000, fair market value of $200,000). The land is subject to a $75,000 liability. Lucinda will have a basis of $125,000 in the land.
a. True
b. False
9. A corporation generally will recognize gain or loss on a liquidating distribution of installment notes to its shareholders.
a. True
b. False
10.Section 332 can apply to a parent-subsidiary liquidation even if the subsidiary corporation is insolvent on the date of the liquidation.
a. True
b. False
.
11.If a liquidation qualifies under § 332, any minority shareholder will recognize gain or loss equal to the difference between the fair market value of assets received and the basis of the shareholder’s stock.
a. True
b. False
12.A subsidiary corporation is liquidated at a time when it is indebted to its parent corporation. The subsidiary corporation distributes property to the parent corporation in satisfaction of the indebtedness. If the liquidation is governed by § 332, neither the subsidiary nor the parent recognize gain or loss on the transfer of property in satisfaction of indebtedness.
a. True
b. False
13.Brown Corporation purchased 85% of the stock of Green Corporation five years ago for $850,000. In the current year, Brown Corporation liquidates Green Corporation and acquires assets with a basis to Green Corporation of $700,000 (fair market value of $1.1 million). Brown Corporation will have a basis in the assets of $850,000, the same as Brown’s basis in its Green stock.
a. True
b. False
14.Sparrow Corporation purchased 90% of the stock of Warbler Corporation eight years ago for $1 million. In the current year, Sparrow liquidates Warbler and acquires assets with a basis to Warbler of $850,000 (fair market value of $1.2 million). Sparrow will have a basis in the assets of $850,000 (Warbler’s basis in the assets), and no recognized gain or loss.
a. True
b. False
15.A subsidiary is liquidated pursuant to § 332. The parent has held 100% of the stock in the subsidiary for the past ten years. The subsidiary has a net operating loss carryover of $400,000. The net operating loss does not carry over to the parent.
a. True
b. False
.
16.If a parent corporation makes a § 338 election, the subsidiary corporation is treated as a new corporation as of the
day following the qualified stock purchase date.
a. True
b. False
17.If a parent corporation makes a § 338 election, the subsidiary corporation recognizes gain but not loss on the deemed
sale of its assets on the qualified stock purchase date.
a. True
b. False
.
18.If a parent corporation makes a § 338 election, the subsidiary corporation must be liquidated.
a. True
b. False
