Question

Question 1

Which of the following is an incorrect statement regarding the tax consequences of a § 306 stock disposition?

		In a sale of § 306 stock, the shareholder generally recognizes ordinary income equal to the fair market value of the preferred stock on the date it was acquired in the stock dividend.
		No loss is recognized on a sale of § 306 stock.
		The issuing corporation’s E & P is not reduced by a sale of § 306 stock.
		In a redemption of § 306 stock, the shareholder generally recognizes dividend income equal to the amount of the redemption proceeds.
		None of the above.

20 points

Question 2

Which of the following statements is correct with respect to a partial liquidation?

		The genuine contraction of a corporate business requirement is an objective test that taxpayers can rely upon with certainty.
		The distribution of proceeds from the sale of excess inventory to shareholders in exchange for part of their stock will not satisfy the not essentially equivalent to a dividend test.
		A stock redemption pursuant to a partial liquidation cannot be pro rata with respect to the shareholders.
		The termination of a business test requires that the distributing corporation actively conducted at least three trades or businesses for at least five years.
		None of the above.

20 points

Question 3

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:

		$140,000 dividend.
		$260,000 dividend.
		$140,000 capital gain.
		$260,000 capital gain.
		None of the above.

20 points

Question 4

The Code treats corporate distributions that are a return of a shareholder’s investment as sales or exchanges and corporate distributions that are a return from a shareholder’s investment as dividends.

True

False

20 points

Question 5

In comparing a qualifying stock redemption with a complete liquidation, which of the following statements is incorrect?

		Liquidations and qualifying stock redemptions parallel each other in terms of the effect that E & P has on the nature of the gain or loss recognized by the shareholder.
		The basis of property acquired is its fair market value on the date of distribution for both a qualifying stock redemption and a liquidation.
		Both a qualifying stock redemption and a complete liquidation produce sale or exchange treatment to the shareholder.
		A corporation will recognize gain upon the distribution of appreciated property for both a qualifying stock redemption and a complete liquidation, but a corporation will recognize loss upon a distribution of depreciated property only for a liquidating distribution.
		Section 267 disallows recognition of losses between related parties in a complete liquidation but not in a qualifying stock redemption.

Answer 1

Question 1

Which of the following is an incorrect statement regarding the tax consequences of a § 306 stock disposition?

		In a sale of § 306 stock, the shareholder generally recognizes ordinary income equal to the fair market value of the preferred stock on the date it was acquired in the stock dividend.
		No loss is recognized on a sale of § 306 stock.
		The issuing corporation’s E & P is not reduced by a sale of § 306 stock.
		In a redemption of § 306 stock, the shareholder generally recognizes dividend income equal to the amount of the redemption proceeds.
		None of the above.

20 points

Question 2

Which of the following statements is correct with respect to a partial liquidation?

		The genuine contraction of a corporate business requirement is an objective test that taxpayers can rely upon with certainty.
		The distribution of proceeds from the sale of excess inventory to shareholders in exchange for part of their stock will not satisfy the not essentially equivalent to a dividend test.
		A stock redemption pursuant to a partial liquidation cannot be pro rata with respect to the shareholders.
		The termination of a business test requires that the distributing corporation actively conducted at least three trades or businesses for at least five years.
		None of the above.

20 points

Question 3

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:

		$140,000 dividend.
		$260,000 dividend.
		$140,000 capital gain.
		$260,000 capital gain.
		None of the above.

20 points

Question 4

The Code treats corporate distributions that are a return of a shareholder’s investment as sales or exchanges and corporate distributions that are a return from a shareholder’s investment as dividends.

True

False

20 points

Question 5

In comparing a qualifying stock redemption with a complete liquidation, which of the following statements is incorrect?

		Liquidations and qualifying stock redemptions parallel each other in terms of the effect that E & P has on the nature of the gain or loss recognized by the shareholder.
		The basis of property acquired is its fair market value on the date of distribution for both a qualifying stock redemption and a liquidation.
		Both a qualifying stock redemption and a complete liquidation produce sale or exchange treatment to the shareholder.
		A corporation will recognize gain upon the distribution of appreciated property for both a qualifying stock redemption and a complete liquidation, but a corporation will recognize loss upon a distribution of depreciated property only for a liquidating distribution.
		Section 267 disallows recognition of losses between related parties in a complete liquidation but not in a qualifying stock redemption.