Question

1. Seven years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 2,000 shares of Blue Corporation in a transaction that qualified under § 351. The assets had a tax basis to her of $400,000 and a fair market value of $700,000 on the date of the transfer. In the current year, Blue Corporation (E & P of $1 million) redeems 600 shares from Eleanor for $260,000 in a transaction that qualifies for sale or exchange treatment. With respect to the redemption, Eleanor will have a: a).$260,000 capital gain. b).$140,000 capital gain.

2.For purposes of a partial liquidation, a distribution is not essentially equivalent to a dividend if it results in a genuine contraction of the business of the corporation. True or False

3. Pursuant to a complete liquidation, Lilac Corporation distributes the following assets to its unrelated shareholders: land held for three years as an investment (basis of $300,000, fair market value of $600,000), inventory (basis of $100,000, fair market value of $80,000), and marketable securities held for four years as an investment (basis of $200,000, fair market value of $240,000). What are the tax consequences to Lilac Corporation as a result of the liquidation?

a.Lilac Corporation would recognize no gain or loss on the liquidation.

b.Lilac Corporation would recognize a net capital gain of $320,000.

c.Lilac Corporation would recognize a net capital gain of $340,000 and an ordinary loss of $20,000.

d.Lilac Corporation would recognize a net capital gain of $340,000.

e.None of these choices are correct.

4. Liquidation expenses incurred by a corporation are generally deductible as § 162 trade or business expenses. True or False

Answer 1