Taxation of Business Entities: Chapter 6 Study Questions

May 26th, 2016
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Chapter 6: Corporate Liquidating Distributions

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TAXATION OF BUSINESS ENTITIES CHAPTER 6 QUIZANSWERS ARE HIGHLIGHTED1.A liquidating corporation could either (1) sell its assets and then distribute remaining cash to itsshareholders or (2) distribute its assets directly to the shareholders who then sell the distributedassets. Do the tax consequences of these alternatives differ?A.Yes, when a corporation sells its ssets and then distributes cash to its shareholders, the gain or loss flows through to theshareholders and the corporation recognizes no gain or loss. However, if assets are distributed directly to theshareholders, the corporation will recognize the gain or loss, not the shareholders.B.No, the results are normally the same unless the corporation is subject to loss limitation rules upon thedistribution of property to certain shareholders.C.No, the results are the same regardless of how a corporation distributes its liquidating assets.D.None of the above.2.Kelly Corporation makes a liquidating distribution. Among other property, it distributes land subject toa mortgage. The mortgage amount exceeds both the adjusted basis and FMV for the land. Explain toKelly Corporation's president how the amount of its recognized gain or loss on the distribution andthe shareholder's basis for the land are determined.A.Kelly Corporation's recognized gain or loss is the amount of mortgage released from the land. The shareholder's basis ofthe land is zero.B.Kelly Corporation's recognized gain is the amo

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