Chapter 19 Test Bank

1. Award: 1.
00 point
Gain or loss is always recognized when realized for tax purposes.
 True
 False
Gains and losses may not be recognized because they are deferred or excluded from taxable
income.
References
True / False Difficulty: 1 Easy Learning Objective: 19-01 Review the

taxation of property dispositions.
2. Award: 1.00 point
Generally, before gain or loss is realized for tax purposes, the taxpayer must engage in a
transaction.
 True
 False
References
True / False Difficulty: 1 Easy Learning Objective: 19-01 Review the

In a tax-deferred transaction, the calculation of a taxpayer's tax basis in property received always
begins with its cost to the taxpayer.
 True
 False
In tax-deferred transactions, the adjusted basis begins with the tax basis of the property exchanged
in the transaction.
References
True / False Difficulty: 1 Easy Learning Objective: 19-02 Recognize the

tax consequences to the parties to a tax-
deferred corporate formation.
Maria defers $100 of gain realized in a §351 transaction. The stock she receives in the exchange has
a fair market value of $500. Maria's tax basis in the stock will be $400.
 True
 False
References
True / False Difficulty: 1 Easy Learning Objective: 19-02 Recognize the

The definition of property as it relates to a §351 transaction includes money.
 True
 False
References
True / False Difficulty: 2 Medium Learning Objective: 19-02 Recognize the

Control as it relates to a §351 transaction is strictly defined to be 80 percent or more of the voting
power of the stock of the corporation to which property is transferred.
 True
 False
Control also requires ownership of 80 percent or more of each class of nonvoting stock.
References

To meet the control test under §351, taxpayers transferring property to a corporation must in
aggregate own 80 percent or more of the corporation's voting stock and 80 percent of each class
of nonvoting stock after the transfer.
 True
 False
The group of taxpayers transferring property must in the aggregate meet the 80 percent ownership
tests.
References

Gain and loss realized in a §351 transaction will be recognized if the taxpayer receives boot in the
exchange.
 True
 False
Only gain realized is recognized when boot is received in a §351 transaction.
References

A taxpayer who receives nonvoting stock is not eligible for deferral in a §351 exchange.
 True
 False
The stock can be voting or nonvoting, common or preferred as long as it is not nonqualified
preferred stock.
References

A taxpayer always will have a tax basis in boot received in a §351 transaction equal to its fair market
value.
 True
 False
References

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a §351

transaction. In all cases, the assumed liability will be treated as boot received by Jane.
 True
 False
A liability assumed by a corporation in a §351 transaction is only treated as boot if the liability is
assumed for tax-avoidance purposes.
References
True / False Difficulty: 3 Hard Learning Objective: 19-02 Recognize the

Mandel transferred property to his new corporation in a §351 transaction. Among the several
properties transferred by Mandel was land with a fair market value of $200,000 and a tax basis of
$250,000. In all cases, the corporation will always take a tax basis in the land of $200,000 to
prevent the "built-in loss" from being transferred from Mandel to the corporation.
 True
 False
The built-in loss rules only apply if the aggregate fair market value of the properties transferred is
less than the aggregate tax basis of the properties transferred.
References
True / False Difficulty: 3 Hard Learning Objective: 19-02 Recognize the

Han transferred land to his solely owned corporation in a §351 transaction. Han had held the land for
two years prior to the transfer and recognized no gain on the transfer. The corporation will tack
Han's holding period for the land.
 True
 False
The holding period of the land tacks when a transfer qualifies under §351.
References

Type A reorganizations involve the transfer of assets of the target corporation via a merger or
consolidation.
 True
 False
References
True / False Difficulty: 1 Easy Learning Objective: 19-03 Identify the

different forms of taxable and tax-
deferred acquisitions.
Tax considerations should always be the primary reason for structuring an acquisition.
 True
 False
Nontax considerations can be more important than tax reasons.
References
True / False Difficulty: 2 Medium Learning Objective: 19-03 Identify the

A §338 transaction is a stock acquisition elected to be treated as an asset acquisition.
 True
 False
References
True / False Difficulty: 1 Easy Learning Objective: 19-04 Determine the

tax consequences to the parties to a
corporate acquisition.
Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received
by the shareholders of the target corporation in the transaction.
 True
 False
The regulations require the target shareholders to receive, in the aggregate, stock with a fair market
value of at least 40 percent of the value of the property transferred in the exchange.
References
True / False Difficulty: 2 Medium Learning Objective: 19-04 Determine the

The shareholders in the target corporation always receive a tax basis in the stock received from the
acquirer equal to the stock's fair market value.
 True
 False
The stock generally takes a substituted basis equal to the tax basis in the shareholder's stock in the
target corporation.
References

The requirements for tax deferral in a forward triangular merger and a reverse triangular merger are
the same.
 True
 False
The requirements for tax deferral in a reverse triangular merger are more restrictive than in a
forward triangular merger.
References
True / False Difficulty: 3 Hard Learning Objective: 19-04 Determine the

A stock-for-stock Type B reorganization will be tax-deferred to a target corporation shareholder as

long as at least 80 percent of the consideration received is in the form of stock of the acquirer.
 True
 False
No boot is allowed in a Type B reorganization. Additional consideration of as little as $1 can taint the
transaction and cause it to be fully taxable.
References

A reverse triangular reorganization requires that the target shareholders receive voting stock of the
acquiring corporation.
 True
 False
References
True / False Difficulty: 3 Hard Learning Objective: 19-04 Determine the

A liquidation of a corporation always is a taxable event for the non-corporate shareholder(s) of the
liquidated corporation.
 True
 False
Taxes are deferred only for a corporate shareholder owning 80 percent or more of the corporation's
stock before it is liquidated.
References
True / False Difficulty: 2 Medium Learning Objective: 19-05 Calculate the

tax consequences that apply to the
parties to a complete liquidation of a
corporation.
The tax basis of property received by a non-corporate shareholder in a complete liquidation will be
the property's fair market value.
 True
 False
Because the transaction is taxable to non-corporate shareholders, the basis of property received
equals its fair market value.
References

corporation.
A liquidated corporation will always recognize gain in a complete liquidation.
 True
 False
Gain realized is not recognized if the distribution is to a corporate shareholder and is tax-deferred
under §332.
References

corporation.
A liquidated corporation will always recognize loss in a complete liquidation where none of the
shareholders is a corporation.
 True
 False
The "built-in loss" rules can prevent a liquidated corporation from recognizing loss realized in a
transfer of property to a non-corporate shareholder.
References
True / False Difficulty: 3 Hard Learning Objective: 19-05 Calculate the

corporation.
Which statement best describes the concept of realization as it applies to gain or loss?
 Realization is the recording of gain or loss on a tax return.
 Realization is the result of an exchange of property rights in a transaction.
 Realization is the excess of amount realized over adjusted basis.
 Realization is the excess of adjusted basis over amount realized.
Realization occurs when a person engages in a transaction.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 19-01 Review the

Which of the following amounts is not included in the computation of amount realized in an
exchange?
 Cash received
 Fair market value of property received
 Selling expenses
 Adjusted basis of property transferred
The adjusted basis of property transferred is subtracted from the amount realized to compute gain
or loss realized.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 19-01 Review the

Which of the following amounts is not included in the computation of a property's adjusted basis in
an exchange?
 Selling expenses incurred by the buyer
 Acquisition cost of the buyer
 Capital improvements made to the property by the buyer
 Depreciation of the property by the buyer
Selling expenses incurred by the buyer reduce the amount realized in the exchange.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 19-01 Review the

Which of the following statements best describes the tax law approach to recognizing gain or loss
realized in an exchange?
 Gain or loss realized is not recognized unless specifically stated otherwise in the Internal
Revenue Code.
 Gain or loss realized is recognized unless specifically stated otherwise in the Internal
Revenue Code.
 Gain realized is recognized unless specifically stated otherwise in the Internal Revenue
Code, but loss realized is not recognized unless specifically stated otherwise in the
Internal Revenue Code.
 Loss realized is recognized unless specifically stated otherwise in the Internal Revenue
Code, but gain realized is not recognized unless specifically stated otherwise in the
The general rule is that gain or loss realized is recognized unless otherwise specifically stated in the
References

Which of the following statements about §351 transactions is false?
 A transferor of property must receive stock equal to at least 80 percent of the fair value of
the property transferred.
 In the aggregate, the transferors of property to the corporation must collectively own 80
percent of the voting stock of the corporation immediately after the transfers.
 Only property transferred to a corporation is eligible for deferral.
 All transfers of property to a corporation must be made simultaneously to qualify for

deferral.
The control test under section 351 applies to the aggregate ownership of the shareholders making
contributions, where control is defined as 80 percent of the voting stock of the corporation (not 80
percent of value of the transferred property).
References
Multiple Choice Difficulty: 3 Hard Learning Objective: 19-02 Recognize the

Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation
in exchange for stock with a fair market value of $350 in a transaction that qualifies for deferral
under section 351. The corporation assumed a liability of $150 on the property transferred. What is
the amount realized by Roberta in the exchange?
 $500
 $400
 $350
 $250
$350 fair market value of the stock received plus $150 from the liability assumed by the corporation.
References

Roberta transfers property with a tax basis of $452 and a fair market value of $596 to a corporation
the amount realized by Roberta in the exchange?
 $596
 $452
 $417
 $298
$417 fair market value of the stock received plus $179 from the liability assumed by the corporation.
References

Inez transfers property with a tax basis of $200 and a fair market value of $300 to a corporation in
exchange for stock with a fair market value of $250 in a transaction that qualifies for deferral under
§351. The corporation assumed a liability of $50 on the property transferred. What is the
corporation's tax basis in the property received in the exchange?
 $150
 $200
 $250
 $300
The corporation's basis equals Inez's tax basis (a carryover basis). Alternatively, the tax basis equals
the property's fair market value of $300 less the gain deferred of $100.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 19-02 Recognize the

Antoine transfers property with a tax basis of $500 and a fair market value of $600 to a corporation
Antoine's tax basis in the stock received in the exchange?
 $600
 $550
 $500
 $450
The shareholder's tax basis equals his tax basis in the property transferred (a substituted basis) less
any liability assumed by the corporation. If Antoine sells the stock for $550, the gain recognized will
be $100, an amount equal to the gain deferred of $100.
References

Antoine transfers property with a tax basis of $593 and a fair market value of $637 to a corporation
Antoine's tax basis in the stock received in the exchange?
 $637
 $594
 $593
 $550
The shareholder's tax basis equals his tax basis in the property transferred (a substituted basis) less
any liability assumed by the corporation. If Antoine sells the stock for $594, the gain recognized will
be $44, an amount equal to the gain deferred of $44.
References

Camille transfers property with a tax basis of $800 and a fair market value of $1,200 to a
corporation in exchange for stock with a fair market value of $850 and $350 in cash in a transaction
that qualifies for deferral under section 351. Camille also incurred selling expenses of $100. What is
the amount realized by Camille in the exchange?
 $1,200
 $1,100
 $850
 $750
$850 fair market value of the stock received plus $350 cash received less $100 selling expenses.
References

Camille transfers property with a tax basis of $925 and a fair market value of $1,280 to a
corporation in exchange for stock with a fair market value of $1,080 and $200 in cash in a
transaction that qualifies for deferral under section 351. Camille also incurred selling expenses of
$113. What is the amount realized by Camille in the exchange?
 $1,280
 $1,167
 $1,080
 $967
$1,080 fair market value of the stock received plus $200 cash received less $113 selling expenses.
References

Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation
in exchange for stock with a fair market value of $650 and $50 in cash in a transaction that qualifies
for deferral under section 351. The corporation assumed a liability of $100 on the property
transferred. What is the corporation's tax basis in the property received in the exchange?
 $800
 $600
 $550
 $450
The corporation's basis in the property equals Carlos's tax basis of $500 (a carryover basis) plus
gain recognized of $50. If the corporation sells the property for $800, it will recognize a gain of
$250, an amount equal to the gain deferred on the transfer.
References

Carlos transfers property with a tax basis of $755 and a fair market value of $1,035 to a corporation
 $1,035
 $798
 $807
 $674
The corporation's basis in the property equals Carlos's tax basis of $755 (a carryover basis) plus
gain recognized of $52. If the corporation sells the property for $1,035, it will recognize a gain of
$228, an amount equal to the gain deferred on the transfer.
References

Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in
exchange for stock with a fair market value of $400 and $50 in cash in a transaction that qualifies
for deferral under §351. The corporation assumed a liability of $50 on the property transferred. What
is Roy's tax basis in the stock received in the exchange?
 $800
 $750
 $700
 $500
The shareholder's tax basis equals his tax basis in the property transferred of $800 (a substituted
basis) less the $50 liability assumed by the corporation less the fair market value of boot received. If
Roy sells the stock for $400, the loss recognized will be $300, an amount equal to the loss deferred
of $300.
References

Casey transfers property with a tax basis of $2,000 and a fair market value of $5,000 to a
transaction that qualifies for deferral under section 351. The corporation assumed a liability of $600
on the property transferred. Casey also incurred selling expenses of $300. What is the amount
realized by Casey in the exchange?
 $5,000
 $4,700
 $4,600
 $4,200
$4,000 fair market value of the stock received plus $400 cash received plus $600 mortgage
assumed less $300 selling expenses.
References

Casey transfers property with a tax basis of $3,080 and a fair market value of $7,700 to a
on the property transferred. Casey also incurred selling expenses of $496. What is the amount
realized by Casey in the exchange?
 $7,700
 $7,204
 $7,104
 $6,429
$6,200 fair market value of the stock received plus $675 cash received plus $825 mortgage
assumed less $496 selling expenses.
References

Tristan transfers property with a tax basis of $900 and a fair market value of $1,200 to a corporation
in exchange for stock with a fair market value of $900 and $200 in cash in a transaction that
qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property
 $1,200
 $1,100
 $1,000
 $900
The corporation's basis in the property equals Tristan's tax basis of $900 (a carryover basis) plus
gain recognized by Tristan of $200 (the lesser of the gain realized or the boot received). If the
corporation sells the property for $1,200, it will recognize a gain of $100, an amount equal to the
gain deferred on the transfer.
References

Tristan transfers property with a tax basis of $1,200 and a fair market value of $1,780 to a
on the property transferred. What is the corporation's tax basis in the property received in the
exchange?
 $1,780
 $1,592
 $1,388
 $1,200
The corporation's basis in the property equals Tristan's tax basis of $1,200 (a carryover basis) plus
gain recognized by Tristan of $392 (the lesser of the gain realized or the boot received). If the
corporation sells the property for $1,780, it will recognize a gain of $188, an amount equal to the
gain deferred on the transfer.
References

Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation
in exchange for stock with a fair market value of $3,000 and $2,000 in cash in a transaction that
qualifies for deferral under §351. The corporation assumed a liability of $1,000 on the property
transferred. What is Sybil's tax basis in the stock received in the exchange?
 $6,000
 $5,000
 $4,000
 $3,000
The shareholder's tax basis equals her tax basis in the property transferred of $5,000 (a substituted
basis) plus gain recognized of $1,000 less boot received of $2,000 less the $1,000 liability assumed
by the corporation. If Sybil sells the stock for $3,000, no gain or loss will be realized.
References

Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a
on the property transferred. What is Ashley's tax basis in the stock received in the exchange?
 $5,000
 $4,000
 $3,000
 $2,000
basis) less boot received of $500 less the $500 liability assumed by the corporation. If Ashley sells
the stock for $2,000, a $2,000 loss will be recognized, an amount equal to the loss deferred of
$2,000.
References

Ashley transfers property with a tax basis of $5,760 and a fair market value of $3,380 to a
on the property transferred. What is Ashley's tax basis in the stock received in the exchange?
 $5,760
 $4,760
 $3,380
 $2,380
basis) less boot received of $435 less the $565 liability assumed by the corporation. If Ashley sells
the stock for $2,380, a $2,380 loss will be recognized, an amount equal to the loss deferred of
$2,380.
References

Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation
for deferral under §351. The corporation assumed a liability of $100 on the property transferred.
What is Rachelle's tax basis in the stock received in the exchange?
 $900
 $850
 $750
 $700
The shareholder's tax basis equals her tax basis in the property transferred of $800 (a substituted
basis) plus gain recognized of $50 less cash received of $50 less the $100 liability assumed by the
corporation. If Rachelle sells the stock for $750, the gain recognized will be $50, an amount equal
to the gain deferred of $50.
References

Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation
 $900
 $850
 $800
 $750
The corporation's tax basis equals the shareholder's tax basis in the property transferred of $800 (a
carryover basis) plus gain recognized by Rachelle of $50 (the lesser of the gain realized or the boot
received). If the corporation sells the property for $900, the gain recognized will be $50.
References

Rachelle transfers property with a tax basis of $1,235 and a fair market value of $1,415 to a
corporation in exchange for stock with a fair market value of $815 and $71 in cash in a transaction
that qualifies for deferral under section 351. The corporation assumed a liability of $529 on the
property transferred. What is the corporation's tax basis in the property received in the exchange?
 $1,415
 $1,306
 $1,235
 $815
The corporation's tax basis equals the shareholder's tax basis in the property transferred of $1,235
(a carryover basis) plus gain recognized by Rachelle of $71 (the lesser of the gain realized or the
boot received). If the corporation sells the property for $1,415, the gain recognized will be $109.
References

Which of the following statements best describes the concept of control as it applies to a §351
transaction?
 Control is defined as the ownership of 80 percent or more of a corporation's voting stock.
 Control is defined as the ownership of 80 percent or more of the fair market value of a
corporation's stock.
 Control is defined as the ownership of 80 percent or more of a corporation's voting stock

and 80 percent or more of the fair market value of a corporation's stock.
 Control is defined as the ownership of 80 percent or more of a corporation's voting stock

and 80 percent or more of the total number of shares of each class of nonvoting stock.
References

Which of the following classes of stock is not allowed to be used in a §351 transaction?
 Voting common stock
 Voting preferred stock
 Nonvoting preferred stock
 All of these classes of stock can be used in a §351 transaction.
§351 is flexible with respect to the stock issued by the transferee corporation, although the voting
power test must be met by the transferor shareholders in the aggregate.
References

Which of the following statements best describes the impact of receiving boot in a §351 transaction?
 Boot received has no impact on the recognition of gain or loss realized in a §351
transaction.
 Boot received causes gain realized to be recognized, but not loss realized.
 Boot received causes loss realized to be recognized, but not gain realized.
 Boot received causes gain or loss realized to be recognized.
Boot received causes gain, but not loss, realized to be recognized in an amount not to exceed the
gain realized.
References

Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation
in exchange for stock with a fair market value of $600. In addition, Sami received stock with a fair
market value of $50 in exchange for services she provided to the corporation in the incorporation
process. Which of the following statements best describes the tax result to Sami because of the
exchanges?
 Sami will recognize $50 of compensation income, but she can count the shares of stock
she receives in exchange for services in determining if the control test is met under §351.
 Sami will recognize $50 of compensation income, but she cannot count the shares of
stock she receives in exchange for services in determining if the control test is met under
§351.
 Sami will not recognize $50 of compensation income, but she can count the shares of
§351.
 Sami will not recognize $50 of compensation income, and she cannot count the shares of
§351.
Sami recognizes $50 of income from services because services are not considered property under
§351. She can count the stock she receives for the services in determining if the control test is met
because the value of the stock received in exchange for property is greater than 10 percent of the
value of the services rendered.
References

Amy transfers property with a tax basis of $900 and a fair market value of $600 to a corporation in
section 351. The corporation assumed a liability of $150 on the property transferred. What is Amy's
tax basis in the stock received in the exchange?
 $900
 $750
 $650
 $450
The shareholder's tax basis equals her tax basis in the property transferred (a substituted basis) less
any liability assumed by the corporation. If Amy sells the stock for $450, the loss recognized will be
$300, an amount equal to the loss deferred of $300.
References

Amy transfers property with a tax basis of $1,410 and a fair market value of $1,100 to a corporation in
section 351. The corporation assumed a liability of $260 on the property transferred. What is Amy's
tax basis in the stock received in the exchange?
 $1,410
 $1,150
 $1,050
 $840
The shareholder's tax basis equals her tax basis in the property transferred (a substituted basis) less
any liability assumed by the corporation. If Amy sells the stock for $840, the loss recognized will be
$310, an amount equal to the loss deferred of $310.
References

Which of the following statements best describes the tax results to a shareholder in a §351
transaction when liabilities on property transferred to the corporation are assumed by the
corporation?
 Liabilities assumed by a corporation on a §351 transfer are always treated as boot.
 Liabilities assumed by a corporation on a §351 transfer are never treated as boot.
 Liabilities assumed by a corporation on a §351 transfer are treated as boot if the total
liabilities assumed exceed the total basis of the assets transferred.
 Liabilities assumed by a corporation on a §351 transfer are treated as boot if there is no

business purpose for the assumption of the liabilities by the corporation.
§357(b) treats all liabilities assumed by a corporation as boot if any of the liabilities are assumed for
a tax-avoidance purpose or there is no business purpose for their assumption.
References

Which of the following statements best describes the "built-in loss" rules that apply to property
transferred to a corporation under §351?
 If the basis of a property transferred to a corporation under §351 exceeds its fair market
value, the corporation will always take a tax basis in the property equal to the property's
fair market value.
 If the basis of a property transferred to a corporation under §351 exceeds its fair market
value, the corporation will always take a tax basis in the property equal to the property's
tax basis in the hands of the shareholder.
 If the aggregate basis of all property transferred to a corporation under §351 exceeds its
aggregate fair market value, the aggregate tax basis of the property in the hands of the
corporation cannot exceed the aggregate fair market value of the property.
 If the aggregate basis of all property transferred to a corporation under §351 exceeds its
aggregate fair market value, the aggregate tax basis of the property in the hands of the
corporation cannot exceed the aggregate tax basis of the property.
The built-in loss rules under §362(e) apply when the aggregate tax basis of property transferred to a
corporation exceeds the aggregate fair market value of the property.
References

Which of the following statements best describes the tax consequences that arise from a
contribution of capital to a corporation by an existing sole shareholder?
 The shareholder recognizes a gain or loss on the transfer, and the corporation's basis in
the property transferred equals its fair market value.
 The shareholder does not recognize a gain or loss on the transfer, and the corporation's
basis in the property transferred equals the shareholder's basis in the property transferred.
 The shareholder recognizes a gain or loss on the transfer, and the corporation's basis in
the property transferred equals the shareholder's basis in the property transferred.
 The shareholder does not recognize a gain or loss on the transfer, and the corporation's
basis in the property transferred equals zero.
The shareholder gets to add the basis of the property contributed to the stock basis in her existing
stock in the corporation.
References

Which of the following statements best describes the tax benefits that arise from the sale of §1244
stock?
 §1244 allows an individual shareholder to exempt gain from sale of the stock from tax.
 §1244 allows an individual shareholder to deduct all of the loss from sale of the stock as an
ordinary loss in the year of the sale.
 §1244 allows an individual shareholder to deduct up to $50,000 of the loss from sale of the
stock as an ordinary loss in the year of the sale.
 §1244 allows a corporate shareholder to deduct up to $50,000 of the loss from sale of the
stock as an ordinary loss in the year of the sale.
§1244 applies only to individuals and limits the treatment of loss as ordinary to $50,000 ($100,000 if
married filing jointly).
References

Which of the following statements does not describe a motivation by the buyer or seller in the
acquisition or sale of a company?
 Buyers generally prefer to buy assets because they can take a tax basis in the assets
acquired equal to the assets' fair market value.
 Buyers generally prefer to buy stock because they can take a tax basis in the underlying
assets of the company acquired equal to the assets' fair market value.
 Sellers generally prefer to sell assets in a tax-deferred reorganization to avoid higher tax
rates imposed on gains from the sale of noncapital assets.
 Sellers generally prefer to sell stock because they can recognize capital gain on the sale
taxed at preferential rates.
Buyers generally prefer to buy assets to get a step-up in basis in the assets.
References
Multiple Choice Difficulty: 3 Hard Learning Objective: 19-03 Identify the

Which of the following statements best describes a §338 transaction?
 A §338 transaction is an election made by the buyer to treat a stock acquisition as an asset
acquisition.
 A §338 transaction is an election made by the buyer to treat an asset acquisition as a stock
acquisition.
 A §338 transaction is an election made by the seller to treat a stock acquisition as an asset
acquisition.
 A §338 transaction is an election made by the seller to treat an asset acquisition as a stock
acquisition.
§338 is an election made by the buyer to treat a stock acquisition as an asset acquisition.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 19-04 Determine the

Which of the following statements best describes the tax consequences of a §338 election?
 Gain or loss is recognized by the acquired corporation on the deemed sale of its assets,
and the buyer gets a stepped-up basis in the assets acquired.
 Gain or loss is recognized by the acquired corporation on the deemed sale of its assets,
and the buyer gets a carryover basis in the assets acquired.
 Gain or loss is not recognized by the acquired corporation on the deemed sale of its
assets, and the buyer gets a stepped-up basis in the assets acquired.
 Gain or loss is not recognized by the acquired corporation on the deemed sale of its
assets, and the buyer gets a carryover basis in the assets acquired.
The tax benefits from a step-up in basis usually are negated by the immediate tax paid on the
deemed sale of assets by the acquired corporation.
References

Which of the following statements best describes the continuity of interest principle as it applies to a
tax-deferred acquisition?
 Continuity of interest requires each shareholder to receive at least 40 percent of the

consideration received in equity of the acquirer.
 Continuity of interest requires shareholders in the aggregate to receive at least 40 percent

of the consideration received in equity of the acquirer.
 Continuity of interest requires each shareholder to receive at least 80 percent of the

consideration received in equity of the acquirer.
 Continuity of interest requires shareholders in the aggregate to receive at least 80 percent

of the consideration received in equity of the acquirer.
Continuity of interest is evaluated in the aggregate. The regulations state that 40 percent equity is
sufficient to meet the COI test.
References

Which of the following principles does not need to be satisfied for an acquisition to be a tax-
deferred reorganization?
 Continuity of interest
 Continuity of purpose
 Business purpose
 Continuity of business enterprise
Continuity of purpose is not a judicial principle that applies to tax-deferred reorganizations.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 19-04 Determine the

Which of the following statements best describes the application of the continuity of enterprise
principle to a Type A tax-deferred reorganization?
 The continuity of business enterprise principle must be satisfied for both the acquirer and
the target corporation.
 The continuity of business enterprise principle must be satisfied for only the target
corporation.
 The continuity of business enterprise principle must be satisfied for only the acquirer.
 The continuity of business enterprise principle does not have to be satisfied as long as the
business purpose principle is satisfied.
The COBE test applies to either the historic business or historic business assets of the target
corporation.
References

Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A
merger. In exchange, she received stock in Plum with a fair market value of $500,000 plus
$500,000 in cash. Simone's tax basis in the Purple stock was $200,000. What amount of gain does
Simone recognize in the exchange and what is her basis in the Plum stock she receives?
 $800,000 gain recognized and a basis in Plum stock of $1,000,000
 $800,000 gain recognized and a basis in Plum stock of $500,000
 $500,000 gain recognized and a basis in Plum stock of $200,000
Gain recognized is $500,000, the lesser of gain realized of $800,000 or cash received. The stock
basis is the carryover basis of $200,000 plus gain recognized less cash received. If Simone sells
the stock for $500,000, she will recognize gain of $300,000, an amount equal to the gain deferred
on the exchange.
References

Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A
merger. In exchange, she received stock in Plum with a fair market value of $712,500 plus $712,500
in cash. Simone's tax basis in the Purple stock was $225,000. What amount of gain does Simone
recognize in the exchange and what is her basis in the Plum stock she receives?
 $1,200,000 gain recognized and a basis in Plum stock of $1,425,000
 $1,200,000 gain recognized and a basis in Plum stock of $712,500
 $712,500 gain recognized and a basis in Plum stock of $225,000
Gain recognized is $712,500, the lesser of gain realized of $1,200,000 or cash received. The stock
basis is the carryover basis of $225,000 plus gain recognized less cash received. If Simone sells the
stock for $712,500, she will recognize gain of $487,500, an amount equal to the gain deferred on
the exchange.
References

Jamie transferred 100 percent of her stock in Fox Company to Otter Corporation in a Type A merger.
In exchange, she received stock in Otter with a fair market value of $400,000 plus $600,000 in
cash. Jamie's tax basis in the Fox stock was $600,000. What amount of gain does Jamie recognize
in the exchange and what is her basis in the Otter stock she receives?
 $400,000 gain recognized and a basis in Otter stock of $400,000
 $600,000 gain recognized and a basis in Otter stock of $400,000
Gain recognized is $400,000, the lesser of gain realized of $400,000 or cash received. The stock
basis is the carryover basis of $600,000 plus gain recognized of $400,000 less cash received of
$600,000. If Jamie sells the stock for $400,000, she will not recognize additional gain because no
gain was deferred in the transaction.
References

Jasmine transferred 100 percent of her stock in Woodward Company to Jefferson Corporation in a
Type A merger. In exchange, she received stock in Jefferson with a fair market value of $600,000
plus $400,000 in cash. Jasmine's tax basis in the Woodward stock was $1,500,000. What amount of
loss does Jasmine recognize in the exchange and what is her basis in the Jefferson stock she
receives?
 $500,000 loss recognized and a basis in Jefferson stock of $600,000
 $500,000 loss recognized and a basis in Jefferson stock of $1,100,000
 No loss recognized and a basis in Jefferson stock of $1,500,000
 No loss recognized and a basis in Jefferson stock of $1,100,000
No loss is recognized when boot is received. Jasmine's basis in the stock equals her basis in the
Woodward stock less the cash received. If Jasmine sells the stock for $600,000, she will recognize
loss of $500,000, an amount equal to the loss deferred.
References

Celeste transferred 100 percent of her stock in Supply Chain Company to Marketing Corporation in
a Type A merger. In exchange, she received stock in Marketing with a fair market value of $500,000
plus $500,000 in cash. Celeste's tax basis in the Supply Chain stock was $1,200,000. What amount
of loss does Celeste recognize in the exchange and what is her basis in the Marketing stock she
receives?
 $200,000 loss recognized and a basis in Marketing stock of $1,200,000
 No loss recognized and a basis in Marketing stock of $1,200,000
 $200,000 loss recognized and a basis in Marketing stock of $700,000
 No loss recognized and a basis in Marketing stock of $700,000
No loss is recognized because the exchange is tax-deferred. The stock basis is the carryover basis
of $1,200,000 less cash received of $500,000. If Celeste sells the stock for $500,000, she will
recognize loss of $200,000, an amount equal to the loss deferred.
References

Celeste transferred 100 percent of her stock in Supply Chain Company to Marketing Corporation in
a Type A merger. In exchange, she received stock in Marketing with a fair market value of $740,000
plus $740,000 in cash. Celeste's tax basis in the Supply Chain stock was $1,570,000. What amount
of loss does Celeste recognize in the exchange and what is her basis in the Marketing stock she
receives?
 $90,000 loss recognized and a basis in Marketing stock of $1,570,000
 No loss recognized and a basis in Marketing stock of $1,570,000
 $90,000 loss recognized and a basis in Marketing stock of $830,000
 No loss recognized and a basis in Marketing stock of $830,000
No loss is recognized because the exchange is tax-deferred. The stock basis is the carryover basis
of $1,570,000 less cash received of $740,000. If Celeste sells the stock for $740,000, she will
recognize loss of $90,000, an amount equal to the loss deferred.
References

Which of the following statements does not describe a requirement that must be met in a tax-
deferred forward triangular merger?
 The 40 percent continuity of interest test must be met with respect to the stock transferred
from the acquisition corporation to the target corporation shareholders.
 The acquirer must hold substantially all of the target corporation's properties after the
merger.
 The continuity of business enterprise test must be met with respect to the target
corporation.
 The target corporation shareholders must receive voting stock in the acquiring
corporation.
A forward triangular merger is flexible with respect to the stock received by the target shareholders.
References
Multiple Choice Difficulty: 3 Hard Learning Objective: 19-04 Determine the

Which of the following statements does not describe a requirement that must be met in a tax-
deferred reverse triangular merger?
 The 40 percent continuity of interest test must be met with respect to the stock transferred
from the acquisition corporation to the target corporation shareholders.
 The target must hold substantially all of the target corporation's properties and the
properties of the acquisition subsidiary after the merger.
 The continuity of business enterprise test must be met with respect to the target
corporation.
 The target corporation shareholders must receive voting stock in the acquiring
corporation.
In a reverse triangular merger, the target shareholders must receive voting stock in the acquiring
corporation in exchange for 80 percent or more of the target corporation stock.
References

Which of the following statements best describes the requirement that must be met in a tax-
deferred Type B stock-for-stock reorganization?
 The 40 percent continuity of interest test must be met with respect to the stock transferred
from the acquisition corporation to the target shareholders.
 The acquiring corporation must hold substantially all of the target's properties after the
acquisition.
 The target corporation shareholders must receive "solely" voting stock in the acquiring
corporation in the exchange.
 The target corporation shareholders must receive voting stock in the acquiring corporation
in exchange for 60 percent or more of the target corporation stock.
To be tax-deferred, a Type B stock-for-stock exchange requires solely the exchange of voting stock
in the acquiring corporation.
References

Juan transferred 100 percent of his stock in Rosa Company to Azul Corporation in a Type B stock-
for-stock exchange. In exchange, he received stock in Azul with a fair market value of $1,000,000.
Juan's tax basis in the Rosa stock was $400,000. What amount of gain does Juan recognize in the
exchange and what is his basis in the Azul stock he receives?
 $600,000 gain recognized and a basis in Azul stock of $400,000
 No gain recognized and a basis in Azul stock of $400,000
 $600,000 gain recognized and a basis in Azul stock of $1,000,000
 No gain recognized and a basis in Azul stock of $1,000,000
No gain is recognized and the Azul stock basis is the basis of the Rosa stock transferred. If Juan
sells the stock for $1,000,000, he will recognize gain of $600,000, an amount equal to the gain
deferred on the exchange.
References

Julian transferred 100 percent of his stock in Lemon Company to Apricot Corporation in a Type B
stock-for-stock exchange. In exchange, he received stock in Apricot with a fair market value of
$200,000. Julian's tax basis in the Lemon stock was $400,000. What amount of loss does Julian
recognize in the exchange and what is his basis in the Apricot stock he receives?
 $200,000 loss recognized and a basis in Apricot stock of $200,000
 No loss recognized and a basis in Apricot stock of $400,000
 No loss recognized and a basis in Apricot stock of $200,000
No loss is recognized and the Apricot stock basis is the basis of the Lemon stock transferred. If
Julian sells the stock for $200,000, he will recognize loss of $200,000, an amount equal to the loss
References

Julian transferred 100 percent of his stock in Lemon Company to Apricot Corporation in a Type B
stock-for-stock exchange. In exchange, he received stock in Apricot with a fair market value of
$305,000. Julian's tax basis in the Lemon stock was $610,000. What amount of loss does Julian
recognize in the exchange and what is his basis in the Apricot stock he receives?
 No loss recognized and a basis in Apricot stock of $610,000
 No loss recognized and a basis in Apricot stock of $305,000
No loss is recognized and the Apricot stock basis is the basis of the Lemon stock transferred. If
Julian sells the stock for $305,000, he will recognize loss of $305,000, an amount equal to the loss
References

Which of the following statements does not describe a tax consequence to shareholders in a
complete liquidation?
 All complete liquidations are taxable to the shareholders.
 Complete liquidations are taxable to all individual shareholders.
 Complete liquidations are taxable to all corporate shareholders owning stock of the
liquidated corporation representing less than 80 percent or more of voting power and
value.
 Complete liquidations are tax-deferred to corporate shareholders owning stock of the

liquidated corporation representing 80 percent or more of voting power and value.
Corporations owning stock representing 80 percent or more of voting power and value receive tax
deferral in a complete liquidation.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 19-05 Calculate the

corporation.
Jalen transferred his 10 percent interest to Wolverine Company as part of a complete liquidation of
the company. In the exchange, he received land with a fair market value of $100,000. Jalen's basis
in the Wolverine stock was $50,000. The land had a basis to Wolverine Company of $80,000. What
amount of gain does Jalen recognize in the exchange and what is his basis in the land he receives?
 $50,000 gain recognized and a basis in the land of $100,000
 $50,000 gain recognized and a basis in the land of $80,000
 No gain recognized and a basis in the land of $80,000
The exchange is taxable. Jalen recognizes the full amount of gain of $50,000 and receives a basis
in the land equal to the land's fair market value.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 19-05 Calculate the

corporation.
Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete
liquidation of the company. In the exchange, Red Blossom received land with a fair market value of
$500,000. The corporation's basis in the Tea Company stock was $300,000. The land had a basis
to Tea Company of $600,000. What amount of gain does Red Blossom recognize in the exchange
and what is its basis in the land it receives?
The exchange is taxable. Red Blossom recognizes the full amount of gain of $200,000 and receives
a basis in the land equal to the land's fair market value.
References

corporation.
Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete
liquidation of the company. In the exchange, Red Blossom received land with a fair market value of
$627,500. The corporation's basis in the Tea Company stock was $367,500. The land had a basis to
Tea Company of $770,000. What amount of gain does Red Blossom recognize in the exchange and
what is its basis in the land it receives?
The exchange is taxable. Red Blossom recognizes the full amount of gain of $260,000 and receives
a basis in the land equal to the land's fair market value.
References

corporation.
Paladin Corporation transferred its 90 percent interest to Furman Company as part of a complete
liquidation of the company. In the exchange, Paladin received land with a fair market value of
$1,000,000. The corporation's basis in the Furman Company stock was $400,000. The land had a
basis to Furman Company of $200,000. What amount of gain does Paladin recognize in the
exchange and what is its basis in the land it receives?
 $600,000 gain recognized and a basis in the land of $1,000,000
 No gain recognized and a basis in the land of $200,000
The exchange is tax-deferred. Paladin takes a basis in the land equal to Furman's basis in the land.
References

corporation.
Katarina transferred her 10 percent interest to Spartan Company as part of a complete liquidation of
the company. In the exchange, she received land with a fair market value of $200,000. Katarina's
basis in the Spartan stock was $100,000. The land had a basis to Spartan Company of $50,000.
What amount of gain does Spartan recognize in the exchange and what is Katarina's basis in the
land she receives?
 $100,000 gain recognized by Spartan and a basis in the land of $200,000 to Katarina
 $150,000 gain recognized by Spartan and a basis in the land of $200,000 to Katarina
 No gain recognized by Spartan and a basis in the land of $100,000 to Katarina
 No gain recognized by Spartan and a basis in the land of $50,000 to Katarina
The exchange is taxable to Spartan. Spartan recognizes the full amount of gain of $150,000, and
Katarina receives a basis in the land equal to the land's fair market value.
References

corporation.
Which of the following statements best describes the recognition of loss on property transferred to
shareholders in complete liquidation of a corporation?
 The liquidated corporation always recognizes loss on the distribution of property in

complete liquidation of the corporation.
 The liquidated corporation never recognizes loss on the distribution of property in

complete liquidation of the corporation.
 The liquidated corporation recognizes loss on the distribution of property in complete

liquidation of the corporation if the property is distributed to individuals who are not
related parties to the corporation.
 The liquidated corporation recognizes loss on the distribution of property in complete

liquidation of the corporation only if the property is distributed to individuals who are
related parties to the corporation.
To recognize loss on the distribution of property in a complete liquidation, the corporation must
distribute the property to unrelated persons who are not 80 percent corporate shareholders. Losses
can be recognized on distributions to related parties if the distribution is pro rata and the property is
not disqualified property.
References

corporation.
Billie transferred her 20 percent interest to Jean Company as part of a complete liquidation of the
company. In the exchange, she received land with a fair market value of $200,000. Billie's basis in
the Jean stock was $100,000. The land had a basis to Jean Company of $400,000. What amount of
loss does Jean recognize in the exchange and what is Billie's basis in the land she receives? Billie is
not considered a related party to Jean Company.
 $200,000 loss recognized by Jean and a basis in the land of $200,000 to Billie
 $200,000 loss recognized by Jean and a basis in the land of $400,000 to Billie
 No loss recognized by Jean and a basis in the land of $200,000 to Billie
 No loss recognized by Jean and a basis in the land of $400,000 to Billie
Jean recognizes the loss of $200,000, and Billie's basis in the land is equal to the land's fair market
value.
References

corporation.
Robin transferred her 60 percent interest to Cardinal Company as part of a complete liquidation of
the company. In the exchange, she received land with a fair market value of $800,000. Robin's basis
in the Cardinal stock was $900,000. The land had a basis to Cardinal Company of $1,000,000. What
amount of loss does Cardinal recognize in the exchange and what is Robin's basis in the land she
receives? The distribution was non-pro rata to Robin, a related person.
 $200,000 loss recognized by Cardinal and a basis in the land of $1,000,000 to Robin
 $200,000 loss recognized by Cardinal and a basis in the land of $800,000 to Robin
 No loss recognized by Cardinal and a basis in the land of $1,000,000 to Robin
 No loss recognized by Cardinal and a basis in the land of $800,000 to Robin
Cardinal is not permitted to recognize the loss of $200,000 because Robin is a related person and
the distribution is non-pro rata. Robin's basis in the land is equal to the land's fair market value.
References
Multiple Choice Difficulty: 3 Hard Learning Objective: 19-05 Calculate the

corporation.
Robin transferred her 60 percent interest to Cardinal Company as part of a complete liquidation of
the company. In the exchange, she received land with a fair market value of $850,000. Robin's basis
in the Cardinal stock was $905,000. The land had a basis to Cardinal Company of $1,105,000. What
amount of loss does Cardinal recognize in the exchange and what is Robin's basis in the land she
receives? The distribution was non-pro rata to Robin, a related person.
 $255,000 loss recognized by Cardinal and a basis in the land of $1,105,000 to Robin
 $255,000 loss recognized by Cardinal and a basis in the land of $850,000 to Robin
 No loss recognized by Cardinal and a basis in the land of $1,105,000 to Robin
 No loss recognized by Cardinal and a basis in the land of $850,000 to Robin
Cardinal is not permitted to recognize the loss of $255,000 because Robin is a related person and
the distribution is non-pro rata. Robin's basis in the land is equal to the land's fair market value.
References
Multiple Choice Difficulty: 3 Hard Learning Objective: 19-05 Calculate the

corporation.
Packard Corporation transferred its 100 percent interest to State Company as part of a complete
liquidation of the company. In the exchange, Packard received land with a fair market value of
$300,000. Packard's basis in the State stock was $600,000. The land had a basis to State Company
of $500,000. What amount of loss does State recognize in the exchange and what is Packard's
basis in the land it receives?
 $200,000 loss recognized by State and a basis in the land of $300,000 to Packard
 $200,000 loss recognized by State and a basis in the land of $500,000 to Packard
 No loss recognized by State and a basis in the land of $300,000 to Packard
 No loss recognized by State and a basis in the land of $500,000 to Packard
State does not recognize the loss of $200,000 because the liquidation is tax-deferred to Packard.
Packard's basis in the land is equal to State's basis in the land (a carryover basis).
References

corporation.
Packard Corporation transferred its 100 percent interest to State Company as part of a complete
liquidation of the company. In the exchange, Packard received land with a fair market value of
$445,000. Packard's basis in the State stock was $677,500. The land had a basis to State Company
of $625,000. What amount of loss does State recognize in the exchange and what is Packard's
basis in the land it receives?
 $180,000 loss recognized by State and a basis in the land of $445,000 to Packard.
 $180,000 loss recognized by State and a basis in the land of $625,000 to Packard.
 No loss recognized by State and a basis in the land of $445,000 to Packard.
 No loss recognized by State and a basis in the land of $625,000 to Packard.
State does not recognize the loss of $180,000 because the liquidation is tax-deferred to Packard.
Packard's basis in the land is equal to State's basis in the land (a carryover basis).
References

corporation.
Keegan incorporated his sole proprietorship by transferring inventory, a building, and land to the
corporation in return for 100 percent of the corporation's stock. The property transferred to the
corporation had the following fair market values and tax-adjusted bases.
FMV Adjusted basis

Inventory $ 20,000 $ 14,000
Building 70,000 50,000
Land 150,000 100,000
Total $ 240,000 $ 164,000
The fair market value of the corporation's stock received in the exchange equaled the fair market
value of the assets transferred to the corporation by Keegan.
What amount of gain or loss does Keegan realize on the transfer of the property to his corporation?
Gain realized of $76,000
Fair market value of stock received $ 240,000

Less: Adjusted basis of property transferred 164,000
Gain realized $ 76,000
References
Essay Difficulty: 1 Easy Learning Objective: 19-01 Review the

Keegan incorporated his sole proprietorship by transferring inventory, a building, and land to the
FMV Adjusted basis

Inventory $ 20,000 $ 14,000
Building 70,000 50,000
Land 150,000 100,000
Total $ 240,000 $ 164,000
The fair market value of the corporation's stock received in the exchange equaled the fair market
value of the assets transferred to the corporation by Keegan.
Assuming the gain or loss realized in this problem is deferred under §351, what is Keegan's basis in
the stock he receives in his corporation?
$164,000
The stock takes a substituted basis of the assets transferred to the corporation.
References
Essay Difficulty: 1 Easy Learning Objective: 19-02 Recognize the

Francine incorporated her sole proprietorship by transferring inventory, a building, and land to the
FMV Adjusted basis

Inventory $ 30,000 $ 10,000
Building 130,000 80,000
Land 50,000 100,000
Total $ 210,000 $ 190,000
The corporation also assumed a mortgage of $60,000 attached to the building and land. The fair
market value of the corporation's stock received in the exchange was $150,000.
a. What amount of gain or loss does Francine realize on the transfer of the property to her
corporation?
b. What amount of gain or loss does Francine recognize on the transfer of the property to her
corporation?
c. What is Francine's basis in the stock she receives in her corporation?
a.
$20,000.

+ Mortgage assumed by corporation 60,000
Amount realized $ 210,000
− Adjusted tax basis of the property transferred 190,000
b. Francine does not recognize any gain or loss on the transfer because the requirements of §351
are met and no boot is received in the exchange.
c. $130,000. Francine's tax basis in the stock received is a substituted basis of the assets transferred
less the mortgage assumed by the corporation.
References
Essay Learning Objective:

19-01 Review the
taxation of property
dispositions.
Difficulty: 3 Hard Learning Objective:

19-02 Recognize the
tax consequences to
the parties to a tax-
deferred corporate
formation.
Francine incorporated her sole proprietorship by transferring inventory, a building, and land to the
FMV Adjusted basis

Inventory $ 54,500 $ 10,600
Building 155,750 125,500
Land 99,500 153,000
Total $ 309,750 $ 289,100
market value of the corporation's stock received in the exchange was $243,000.
a. What amount of gain or loss does Francine realize on the transfer of the property to her
corporation?
b. What amount of gain or loss does Francine recognize on the transfer of the property to her
corporation?
c. What is Francine's basis in the stock she receives in her corporation?
a.
$20,650

b. Francine does not recognize any gain or loss on the transfer because the requirements of §351
are met and no boot is received in the exchange.
c. $222,350. Francine's tax basis in the stock received is a substituted basis of the assets
transferred less the mortgage assumed by the corporation.
References
Essay Learning Objective:

19-01 Review the
taxation of property
dispositions.
Difficulty: 3 Hard Learning Objective:

19-02 Recognize the
tax consequences to
the parties to a tax-
deferred corporate
formation.
Zhao incorporated her sole proprietorship by transferring inventory, a building, and land to the
FMV Adjusted basis

Inventory $ 80,000 $ 40,000
Building 100,000 120,000
Land 200,000 150,000
Total $ 380,000 $ 310,000
market value of the corporation's stock received in the exchange was $330,000. The transaction
met the requirements to be tax-deferred under §351.
a. What amount of gain or loss does Zhao realize on the transfer of the property to her corporation?
b. What amount of gain or loss does Zhao recognize on the transfer of the property to her
corporation?
c. What is the corporation's adjusted basis in each of the assets received in the exchange?
a.
$70,000 gain

b. Zhao does not recognize any gain or loss on the transfer because the requirements of §351 are
met and no boot is received in the exchange.
c.
The corporation receives a carryover basis in the assets received from Zhao. The built-in loss rules
do not apply because the total fair market value of the assets transferred exceeds the aggregate
basis of the assets transferred.
Inventory $ 40,000
Building 120,000
Land 150,000
References
Essay Difficulty: 2 Medium Learning Objective: 19-02 Recognize the

Phillip incorporated his sole proprietorship by transferring inventory, a building, and land to the
FMV Adjusted basis

Inventory $ 100,000 $ 50,000
Building 100,000 250,000
Land 200,000 150,000
Total $ 400,000 $ 450,000
The fair market value of the corporation's stock received in the exchange was $400,000. The
transaction met the requirements to be tax-deferred under §351.
a. What amount of net gain or loss does Phillip realize on the transfer of the property to his
corporation?
b. What amount of gain or loss does Phillip recognize on the transfer of the property to his
corporation?
a.
Net $50,000 loss

Loss realized $ (50,000)
b. Phillip does not recognize any gain or loss on the transfer because the requirements of §351 are
met.
c.
The corporation receives a carryover basis in the assets received from Phillip, reduced by the
aggregate net $50,000 built-in loss on the assets transferred, which is allocated to the building.
Inventory $ 50,000
Building ($250,000 − $50,000) 200,000
Land 150,000
References
Essay Difficulty: 3 Hard Learning Objective: 19-02 Recognize the

Phillip incorporated his sole proprietorship by transferring inventory, a building, and land to the
FMV Adjusted basis

Inventory $ 120,000 $ 67,000
Building 136,500 297,750
Land 215,250 163,500
$ 471,750 $ 528,250
Total
The fair market value of the corporation's stock received in the exchange was $471,750. The
transaction met the requirements to be tax-deferred under §351.
a. What amount of net gain or loss does Phillip realize on the transfer of the property to his
corporation?
b. What amount of gain or loss does Phillip recognize on the transfer of the property to his
corporation?
a.
Net $56,500 loss

b. Phillip does not recognize any gain or loss on the transfer because the requirements of §351 are
met.
c. The corporation receives a carryover basis in the assets received from Phillip, reduced by the
aggregate net $56,500 built-in loss on the assets transferred, which is allocated to the building.
Inventory $ 67,000
Building ($297,750 − $56,500) 241,250
Land 163,500
References

Ken and Jim agree to go into business together selling old comic books and records. According to
the agreement, Ken will contribute inventory valued at $200,000 in return for 80 percent of the
stock in the corporation. Ken's tax basis in the inventory is $100,000. Jim will receive 20 percent of
the stock in return for providing accounting services to the corporation (these qualify as
organizational expenditures). The accounting services are valued at $50,000.
Please answer the following questions about the tax consequences of the transaction to Ken.
a. What amount of gain or loss does Ken realize on the formation of the corporation?
b. What amount of gain or loss, if any, does he recognize?
c. What is Ken's tax basis in the stock he receives in return for his contribution of property to the
corporation?
a.
$100,000 gain

b. Ken does not recognize any gain or loss on the transfer because the requirements of §351 are
met.
c. $100,000. Ken's tax basis in the stock received is a substituted basis of the inventory transferred.
References
Essay Difficulty: 1 Easy Learning Objective: 19-02 Recognize the

Ken and Jim agree to go into business together selling old comic books and records. According to
the agreement, Ken will contribute inventory valued at $200,000 in return for 80 percent of the
stock in the corporation. Ken's tax basis in the inventory is $100,000. Jim will receive 20 percent of
the stock in return for providing accounting services to the corporation (these qualify as
organizational expenditures). The accounting services are valued at $50,000.
Please answer the following questions about the tax consequences of the transaction to Jim.
a. What amount of income gain or loss does Jim realize on the formation of the corporation?
b. What amount of gain or loss, if any, does he recognize?
c. What is Jim's tax basis in the stock he receives in return for his contribution of services to the
corporation?
a. $50,000 compensation is realized.
b. $50,000 compensation is recognized. Jim is not entitled to tax deferral under §351 because
services are not considered property.
c. $50,000. The tax basis of the stock equals the income recognized on the receipt of the stock in
exchange for services.
References

Don and Marie formed Paper Lilies Corporation on January 2. Don contributed cash of $400,000 in
return for 50 percent of the corporation's stock. Marie contributed a building and land with the
following fair market values and tax-adjusted bases in return for 50 percent of the corporation's
stock.
FMV Adjusted basis

Building 180,000 120,000
Land 270,000 80,000
Total $ 450,000 $ 200,000
To equalize the exchange, Paper Lilies Corporation paid Marie $50,000 in addition to her stock.
a. What amount of gain or loss does Marie realize on the formation of the corporation?
b. What amount of gain or loss, if any, does she recognize?
c. What is Marie's tax basis in the stock she receives in return for her contribution of property to the
corporation?
d. What adjusted basis does Paper Lilies Corporation take in the land and building received from
Marie?
a.
$250,000 gain realized

+ Cash received from Paper Lilies 50,000
b. $50,000 gain recognized. The gain recognized is the lesser of the gain realized or the boot
received.
c.
$200,000
Adjusted basis of property transferred $ 200,000

Gain recognized 50,000
Less boot received $ (50,000)
− Adjusted tax basis of the stock received $ 200,000
d.
Building: $140,000; Land: $110,000
Paper Lilies Corporation increases the tax basis of the building and land to reflect the gain
recognized by Marie. The gain is allocated to the assets based on their relative fair market values:
Building: $180,000/$450,000 × $50,000 = $20,000

Land: $270,000/$450,000 × $50,000 = $30,000
The building's tax basis = $120,000 + $20,000 = $140,000

The land's tax basis = $80,000 + $30,000 = $110,000
References

Harry and Sally formed Empire Corporation on January 2. Harry contributed cash of $500,000 in
return for 50 percent of the corporation's stock. Sally contributed a building and land with the
following fair market values and adjusted basis in return for 50 percent of the corporation's stock.
FMV Adjusted basis

Building 180,000 150,000
Land 420,000 500,000
Total $ 600,000 $ 650,000
To equalize the exchange, Empire Corporation paid Sally $100,000 in addition to her stock.
a. What amount of gain or loss does Sally realize on the formation of the corporation?
b. What amount of gain or loss, if any, does she recognize?
c. What is Sally's tax basis in the stock she receives in return for her contribution of property to the
corporation?
d. What adjusted basis does Empire Corporation take in the land and building received from Sally?
a.
$50,000 loss realized

+ Cash received from Empire 100,000
b. $30,000 gain is recognized. Sally allocates the $100,000 boot between the building and land
based on relative FMV. The boot allocated to the building is $30,000 ($100,000 × $180/$600). Gain
recognized is the lesser of the gain realized or boot received. No loss is recognized on the transfer
of the land. The gain (but not loss) recognized is the lesser of the gain realized or the boot received.
c.
$580,000
Adjusted basis of property transferred $ 650,000

Plus gain recognized 30,000
Less boot received (100,000)
− Adjusted tax basis of the stock received $ 580,000
d.
Building: $180,000 ($150,000 + $30,000 gain); Land: $450,000
The corporation receives a carryover basis in the land received from Sally, reduced by the
aggregate net $50,000 built-in loss on the assets transferred, which is allocated to the land. The
corporation increases the carryover basis in the building transferred by the gain recognized by Sally
on the transfer.
Building 180,000
Land ($500,000 − $50,000) 450,000
References

In December 2019, Jill incurred a $50,000 loss on the sale of Crown Corporation stock that she
purchased in 2010. The stock satisfied all of the §1244 stock requirements at the time of issue. Jill is
married to Jack and together they file a joint tax return. How much of the loss can Jack and Jill
deduct in 2019, assuming they do not have capital gains in the current or prior years, and what is
the character of the loss?
$50,000 ordinary loss
§1244 limits the ordinary loss deduction for a married couple filing jointly to $100,000.
References

In December 2019, Zeb incurred a $100,000 loss on the sale of Pike Corporation stock that he
purchased in 2010. The stock satisfied all of the §1244 stock requirements at the time of issue. In
addition, Zeb reported a long-term capital gain of $40,000 in 2019. Zeb is single. How much of the
loss can Zeb deduct in 2019, and what is the character of the loss?
$50,000 ordinary loss under §1244, $40,000 capital loss deduction that is utilized against the
capital gain of $40,000, and a $3,000 capital loss against ordinary income as part of the remaining
net capital loss of $10,000. Zeb has a residual net capital loss carryforward to 2020 of $7,000.
§1244 limits the ordinary loss deduction for a single individual to $50,000. Any remaining NCL can
offset capital gains, with the remainder reducing up to $3,000 of ordinary income.
References

In December 2019, Zeb incurred a $127,000 loss on the sale of Pike Corporation stock that he
purchased in 2010. The stock satisfied all of the §1244 stock requirements at the time of issue. In
addition, Zeb reported a long-term capital gain of $64,250 in 2019. Zeb is single. How much of the
loss can Zeb deduct in 2019, and what is the character of the loss?
$50,000 ordinary loss under §1244, $64,250 capital loss deduction that is utilized against the
capital gain of $64,250, and a $3,000 capital loss against ordinary income as part of the remaining
net capital loss of $12,750. Zeb has a residual net capital loss carryforward to 2020 of $9,750.
§1244 limits the ordinary loss deduction for a single individual to $50,000. Any remaining NCL can
offset capital gains, with the remainder reducing up to $3,000 of ordinary income.
References

Boston, Incorporated made a capital contribution of investment property to its 100 percent–owned
subsidiary, Hartford Company. The investment property had a fair market value of $1,000,000 and a
tax basis to Boston of $250,000. What are the tax consequences to Boston, Incorporated on the
contribution of the investment property to Hartford Company and what is the tax basis of the
investment property to Hartford Company after the contribution to capital?
No gain is recognized by Boston, Incorporated The tax basis of the property to Hartford is
$250,000, a carryover basis from Boston, Incorporated
Contributions to capital by a shareholder are nontaxable events. The corporation receiving the
contribution to capital takes a carryover basis in the property.
References

The City of Boston made a capital contribution of land to Fenway Company as an inducement to the
company to build a manufacturing plant in the city. Boston paid $600,000 for the land several years
ago and it currently has a fair market value of $1,000,000. What is the tax basis of the land to
Fenway Company?
Zero.
Contributions to capital by a non-shareholder to a corporation take a zero basis.
References

Simon transferred 100 percent of his stock in Idol Company to Bobcat Corporation in a Type A
merger. In exchange he received stock in Bobcat with a fair market value of $2,000,000 plus
$500,000 in cash. Simon's tax basis in the Idol stock was $1,500,000. What amount of gain does
Simon recognize in the exchange and what is his basis in the Bobcat stock he receives?
$500,000 gain recognized and a tax basis in Bobcat stock of $1,500,000.
Gain recognized is $500,000, the lesser of gain realized of $1,000,000 or cash received. The stock
basis is the carryover basis of $1,500,000 plus gain recognized less cash received. If Simon sells
the stock for $2,000,000, he will recognize gain of $500,000, an amount equal to the gain deferred
on the exchange.
References
Essay Difficulty: 2 Medium Learning Objective: 19-04 Determine the

Jasmine transferred 100 percent of her stock in Emerald Company to Jade Corporation in a Type A
merger. In exchange she received stock in Jade with a fair market value of $800,000 plus
$1,200,000 in cash. Jasmine's tax basis in the Emerald stock was $900,000. What amount of gain
does Jasmine recognize in the exchange and what is her basis in the Jade stock she receives?
$1,100,000 gain recognized and a stock basis of $800,000.
Gain recognized is $1,100,000, the lesser of gain realized of $1,100,000 or cash received of
$1,200.000. The stock basis is the carryover basis of $900,000 plus gain recognized of $1,100,000
less cash received of $1,200,000. If Jasmine sells the stock for $800,000, she will not recognize
additional gain because no gain was deferred in the transaction.
References

Jasmine transferred 100 percent of her stock in Emerald Company to Jade Corporation in a Type A
merger. In exchange she received stock in Jade with a fair market value of $935,000 plus
$1,375,000 in cash. Jasmine's tax basis in the Emerald stock was $1,091,000. What amount of gain
does Jasmine recognize in the exchange and what is her basis in the Jade stock she receives?
$1,219,000 gain recognized and a stock basis of $935,000.
Gain recognized is $1,219,000, the lesser of gain realized of $1,219,000 or cash received of
$1,375,000. The stock basis is the carryover basis of $1,091,000 plus gain recognized of $1,219,000
less cash received of $1,375,000. If Jasmine sells the stock for $935,000, she will not recognize
additional gain because no gain was deferred in the transaction.
References

Sue transferred 100 percent of her stock in Oakland Company to Applegate Corporation in a Type A
merger. In exchange she received stock in Applegate with a fair market value of $800,000 plus
$400,000 in cash. Sue's tax basis in the Oakland stock was $1,500,000. What amount of gain or
loss does Sue recognize in the exchange and what is her basis in the Applegate stock she
receives?
No loss recognized. Her basis in the Applegate stock is $1,100,000.

No loss is recognized when boot is received. Sue's basis in the stock equals her basis in the
Oakland stock less the cash received. If Sue sells the stock for $800,000, she will recognize loss of
$300,000, an amount equal to the loss deferred.
References

April transferred 100 percent of her stock in June Company to March Corporation in a taxable
merger. In exchange she received stock in March with a fair market value of $400,000 plus
$1,200,000 in cash. April's tax basis in the June stock was $2,000,000. What amount of loss does
April recognize in the exchange and what is her basis in the March stock she receives?
$400,000 capital loss. Her basis in the March stock is $400,000, the stock's fair market value. The
transaction is taxable because boot exceeds 60 percent of the consideration.
Loss is recognized because the exchange is not tax-deferred. The stock basis is fair market value
because the transaction is taxable.
References

April transferred 100 percent of her stock in June Company to March Corporation in a taxable
merger. In exchange she received stock in March with a fair market value of $502,500 plus
$1,380,000 in cash. April's tax basis in the June stock was $2,221,000. What amount of loss does
April recognize in the exchange and what is her basis in the March stock she receives?
$338,500 capital loss. Her basis in the March stock is $502,500, the stock's fair market value. The
transaction is taxable because boot exceeds 60 percent of the consideration.
Loss is recognized because the exchange is not tax-deferred. The stock basis is fair market value
because the transaction is taxable.
References

Rich and Rita propose to have their corporation, Big Blue, acquire another corporation, Green
Company, in a stock-for-stock Type B acquisition. The sole shareholder of Green, Mark Dee, will
receive $500,000 of Big Blue voting stock in the transaction. Mark's tax basis in his Green stock is
$100,000. What is Mark's tax basis in the Big Blue stock he receives in the exchange and what is Big
Blue's basis in the Green stock it receives in return?
Mark's basis in the Big Blue stock is $100,000, and Big Blue's stock basis in Green also is $100,000.
In a tax-deferred Type B reorganization, the shareholder of the target corporation receives a

substituted basis in the stock received and the acquirer receives a carryover basis in the stock of
the target corporation.
References

Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Incorporated. After
liquidating its remaining inventory and paying off its remaining liabilities, Amelia had the following
tax accounting balance sheet.
Adjusted basis FMV Appreciation

Cash $ 100,000 $ 100,000
Building 150,000 200,000 50,000
Land 50,000 120,000 70,000
Total $ 300,000 $ 420,000 $ 120,000
Under the terms of the agreement, Gary will receive the $100,000 cash in exchange for his interest
in Amelia. Gary's tax basis in his Amelia stock is $30,000. Laura will receive the building and land in
exchange for her interest in Amelia. Laura's tax basis in her Amelia stock is $60,000.
What amount of gain or loss does Amelia recognize in the complete liquidation?
Amelia has a taxable transaction and recognizes gain of $50,000 on the transfer of the building and
gain of $70,000 on the transfer of the land.
In a complete liquidation that is taxable to the shareholders, the liquidated corporation has a taxable
transaction when gain is realized.
References
Essay Difficulty: 2 Medium Learning Objective: 19-05 Calculate the

corporation.

Cash $ 100,000 $ 100,000
Building 150,000 200,000 50,000
Land 50,000 120,000 70,000
Total $ 300,000 $ 420,000 $ 120,000
What amount of gain or loss does Gary recognize in the complete liquidation?
Gary recognizes gain of $70,000 on the transfer of his stock to Amelia ($100,000 − $30,000) in
complete liquidation of Amelia.
Distributions in complete liquidation to individual shareholders are taxable to the shareholders.
References


Cash $ 180,000 $ 180,000
Building 211,000 266,000 55,000
Land 77,200 154,400 77,200
Total $ 468,200 $ 600,400 $ 132,200
What amount of gain or loss does Gary recognize in the complete liquidation?
Gary recognizes gain of $144,000 on the transfer of his stock to Amelia ($180,000 − $36,000) in
complete liquidation of Amelia.
References


Cash $ 100,000 $ 100,000
Building 150,000 200,000 50,000
Land 50,000 120,000 70,000
Total $ 300,000 $ 420,000 $ 120,000
What amount of gain or loss does Laura recognize in the complete liquidation and what is Laura's
tax basis in the building and land after the complete liquidation?
Laura recognizes gain of $260,000 on the transfer of her stock to Amelia ($320,000 − $60,000) in
complete liquidation of Amelia. Her basis in the building is $200,000 and her basis in the land is
$120,000.
Distributions in complete liquidation to individual shareholders are taxable to the shareholders and
noncash property received takes a basis equal to fair market value.
References

corporation.
Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation.
After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the
following tax accounting balance sheet.
FMV Adjusted basis Appreciation

Cash $ 200,000 $ 200,000
Building 200,000 100,000 100,000
Land 100,000 150,000 (50,000)
Total $ 500,000 $ 450,000 $ 50,000
Under the terms of the agreement, Mike will receive the $200,000 cash in exchange for his 40
percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $50,000. Michelle will
receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis
in the Pennsylvania stock is $100,000.
What amount of gain or loss does Pennsylvania recognize in the complete liquidation?
Pennsylvania has a taxable transaction and recognizes gain of $100,000 on the transfer of the
building. However, Pennsylvania cannot recognize the $50,000 loss.
transaction when gain is realized. The loss cannot be recognized because the property is
distributed non-pro rata to a related party (Michelle owns more than 50 percent of the stock of
Pennsylvania).
References
Essay Difficulty: 3 Hard Learning Objective: 19-05 Calculate the

corporation.

Cash $ 270,000 $ 270,000
Building 189,000 100,000 89,000
Land 216,000 277,000 (61,000)
Total $ 675,000 $ 647,000 $ 28,000
What amount of gain or loss does Pennsylvania recognize in the complete liquidation?
Pennsylvania has a taxable transaction and recognizes gain of $89,000 on the transfer of the
building. However, Pennsylvania cannot recognize the $61,000 loss.
transaction when gain is realized. The loss cannot be recognized because the property is
distributed non-pro rata to a related party (Michelle owns more than 50 percent of the stock of
Pennsylvania).
References
Essay Difficulty: 3 Hard Learning Objective: 19-05 Calculate the

corporation.

Cash $ 200,000 $ 200,000
Building 200,000 100,000 100,000
Land 100,000 150,000 (50,000)
Total $ 500,000 $ 450,000 $ 50,000
What amount of gain or loss does Mike recognize in the complete liquidation?
Mike recognizes gain of $150,000 on the transfer of his stock to Pennsylvania ($200,000 −
$50,000) in complete liquidation of Pennsylvania.
References


Cash $ 236,000 $ 236,000
Building 213,000 147,000 66,000
Land 141,000 181,000 (40,000)
Total $ 590,000 $ 564,000 $ 26,000
What amount of gain or loss does Mike recognize in the complete liquidation?
Mike recognizes gain of $183,000 on the transfer of his stock to Pennsylvania ($236,000 −
$53,000) in complete liquidation of Pennsylvania.
References


Cash $ 200,000 $ 200,000
Building 200,000 100,000 100,000
Land 100,000 150,000 (50,000)
Total $ 500,000 $ 450,000 $ 50,000
What amount of gain or loss does Michelle recognize in the complete liquidation, and what is her
Michelle recognizes gain of $200,000 on the transfer of her stock to Pennsylvania ($300,000 −
$100,000) in complete liquidation of Pennsylvania. Her basis in the building is $200,000 and her
basis in the land is $100,000.
Distributions in complete liquidation to individual shareholders are taxable to the shareholders, and
References

corporation.

Cash $ 211,000 $ 211,000
Building 259,000 168,000 91,000
Land 57,500 123,000 (65,500)
Total $ 527,500 $ 502,000 $ 25,500
What amount of gain or loss does Michelle recognize in the complete liquidation, and what is her
Michelle recognizes gain of $187,000 on the transfer of her stock to Pennsylvania ($316,500 −
$129,500) in complete liquidation of Pennsylvania. Her basis in the building is $259,000 and her
basis in the land is $57,500.
Distributions in complete liquidation to individual shareholders are taxable to the shareholders, and
References

corporation.
Oriole,Incorporated decided to liquidate its wholly owned subsidiary, Tiger Corporation. Tiger had
the following tax accounting balance sheet.

Cash $ 400,000 $ 400,000
Building 100,000 20,000 80,000
Land 300,000 180,000 120,000
Total $ 800,000 $ 600,000 $ 200,000
a. What amount of gain or loss does Tiger recognize in the complete liquidation?
b. What amount of gain or loss does Oriole recognize in the complete liquidation?
c. What is Oriole's tax basis in the building and land after the complete liquidation?
a. No gain or loss is recognized.
b. No gain or loss is recognized.
c. $600,000. Oriole takes a carryover tax basis in each of Tiger's assets received in the liquidation.
a. Tiger does not recognize gain or loss on the liquidation because the liquidating distribution is to a
corporation that owns 80 percent or more of Tiger.
b. Oriole does not recognize gain or loss on the receipt of the liquidating distribution because it
owns 80 percent or more of Tiger.
References

corporation.

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1. Award: 1.

Gain or loss is always recognized when realized for tax purposes.

True / False Diﬃculty: 1 Easy Learning Objective: 19-01 Review the

2. Award: 1.00 point

True / False Diﬃculty: 1 Easy Learning Objective: 19-01 Review the

True / False Diﬃculty: 1 Easy Learning Objective: 19-02 Recognize the

4. Award: 1.00 point

True / False Diﬃculty: 1 Easy Learning Objective: 19-02 Recognize the

The deﬁnition of property as it relates to a §351 transaction includes money.

True / False Diﬃculty: 2 Medium Learning Objective: 19-02 Recognize the

6. Award: 1.00 point

True / False Diﬃculty: 2 Medium Learning Objective: 19-02 Recognize the

True / False Diﬃculty: 2 Medium Learning Objective: 19-02 Recognize the

8. Award: 1.00 point

Only gain realized is recognized when boot is received in a §351 transaction.

True / False Diﬃculty: 2 Medium Learning Objective: 19-02 Recognize the

True / False Diﬃculty: 2 Medium Learning Objective: 19-02 Recognize the

10. Award: 1.00 point

True / False Diﬃculty: 2 Medium Learning Objective: 19-02 Recognize the

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a §351

True / False Diﬃculty: 3 Hard Learning Objective: 19-02 Recognize the

12. Award: 1.00 point

True / False Diﬃculty: 3 Hard Learning Objective: 19-02 Recognize the

True / False Diﬃculty: 2 Medium Learning Objective: 19-02 Recognize the

14. Award: 1.00 point

True / False Diﬃculty: 1 Easy Learning Objective: 19-03 Identify the

Nontax considerations can be more important than tax reasons.

True / False Diﬃculty: 2 Medium Learning Objective: 19-03 Identify the

16. Award: 1.00 point

A §338 transaction is a stock acquisition elected to be treated as an asset acquisition.

True / False Diﬃculty: 1 Easy Learning Objective: 19-04 Determine the

True / False Diﬃculty: 2 Medium Learning Objective: 19-04 Determine the

18. Award: 1.00 point

True / False Diﬃculty: 2 Medium Learning Objective: 19-04 Determine the

True / False Diﬃculty: 3 Hard Learning Objective: 19-04 Determine the

20. Award: 1.00 point

A stock-for-stock Type B reorganization will be tax-deferred to a target corporation shareholder as

True / False Diﬃculty: 2 Medium Learning Objective: 19-04 Determine the

True / False Diﬃculty: 3 Hard Learning Objective: 19-04 Determine the

22. Award: 1.00 point

True / False Diﬃculty: 2 Medium Learning Objective: 19-05 Calculate the

True / False Diﬃculty: 2 Medium Learning Objective: 19-05 Calculate the

24. Award: 1.00 point

A liquidated corporation will always recognize gain in a complete liquidation.

True / False Diﬃculty: 2 Medium Learning Objective: 19-05 Calculate the

True / False Diﬃculty: 3 Hard Learning Objective: 19-05 Calculate the

26. Award: 1.00 point

 Realization is the recording of gain or loss on a tax return.

 Realization is the result of an exchange of property rights in a transaction.

 Realization is the excess of amount realized over adjusted basis.

 Realization is the excess of adjusted basis over amount realized.

Realization occurs when a person engages in a transaction.

Multiple Choice Diﬃculty: 1 Easy Learning Objective: 19-01 Review the

 Fair market value of property received

 Adjusted basis of property transferred

Multiple Choice Diﬃculty: 1 Easy Learning Objective: 19-01 Review the

28. Award: 1.00 point

 Selling expenses incurred by the buyer

 Acquisition cost of the buyer

 Capital improvements made to the property by the buyer

 Depreciation of the property by the buyer

Multiple Choice Diﬃculty: 2 Medium Learning Objective: 19-01 Review the

Multiple Choice Diﬃculty: 2 Medium Learning Objective: 19-01 Review the