Question

FMV 2. (15 points) X Corp's balance sheet shows the following: BASIS $10.000 Cash Equipment -net Land 1 Land 2 $10,000 40,000 100,000 150.000 50,000 150.000 125.000 $335,000 $300,000 Total All of the stock is owned by A. Her basis is $90,000. Answer the following questions based on the above information. A. Calculate the gain or loss to X Corp. if X liquidates and distributes all assets to A. B. Calculate the gain or loss to A on the liquidation in Question A. C. Corporation Y purchases the stock from A for $335,000. Y immediately liquidates X Corporation. How much gain or loss is recognized by X and what are the bases of the assets to Y? D. Same facts as except Y Corp. made a Section 338 election. Assume a corporate tax rate of 21 % How much gain or loss is recognized and what are the bases of the assets acquired by Y? E. What factors should a buyer and seller consider in evaluating whether to make a Section 338 election? 3. (6 points) Corporation Pacquired the stock of Corporation T for $30 Million from T shareholders. No Section 338 election was made. Corporation T has assets with a fair market value of $25 Million and an adjusted basis of $22 Million. Corporation T also has a net operating loss carryover of $10 Million. The federal long term tax exempt rate at the date of acquisition is 2%. A) What is P's basis in T's assets and what is the annual limitation on the use of T's net operating loss? toimen B) Briefly explain the rules for corporate net operating losses arising after 2017. 4. (6 points) Your client, a public corporation, has received a Revenue Agent's Report (RAR) from the IRS proposing a significant income tax liability relating to a transfer pricing issue. A) Briefly discuss the purpose of the RAR and options available to your client. B) What factors should your client consider before taking action?

Answer 1

A)

FMV	$ 335,000
Basis	$300,000
Gain to X Corp	$35,000

　

B)

FMV	$335,000
Basis	$200,000
Gain to A	$135,000

　

C) According to $ 332, no gain/loss would be recognized. The bases of the assets will be carry over from Corporation-X to Corporation-Y

D) X Corp. gained $35,000; thus tax liability will be 35,000 * 21% = 7,350

The cost of stock equals 7350 + 335000 = 3$42,350

According to the residual method, the cost of stock will be allocated as below:

Cash	$10,000
Equipment	$50,000
Land 1	$150,000
Land 2	$125,000
Goodwill	$7,350
Total	$342,350

The revised bases of asset will be carryover to Corporation-Y. The liquidation need be covered with $ 332. There will no gain/loss recognized.