Online Final Exam Help For Taxation Of A Corporation And Shareholders

11/22/21, 12:07 PM Review Test Submission: Week 1 Assessment Quiz (B) – ... Fall21_LTX_2101_201 Week 1 Review Test Submission: Week 1 Assessment Quiz (B) Review Test Submission: Week 1 Assessment Quiz (B) User Course Test Started Submitted Due Date Status Attempt Score Time Elapsed Mr. Fred H. Taxation Corps & Shareholders Week 1 Assessment Quiz (B) 10/31/21 9:26 PM 10/31/21 10:26 PM 10/31/21 11:59 PM Completed 50 out of 60 points   1 hour, 0 minute out of 1 hour Results Displayed All Answers, Submitted Answers, Correct Answers, Feedback, Incorrectly Answered Questions Question 1 Selected Answer: a. Answers: a. b. c. Response Feedback: Income: Revenue from landscaping service $445,000 Bank interest income 1,000 Municipal bond interest income 2,500 Expenses: Employee wages 165,000 Operating expenses 110,000 MACRS depreciation 23,000 Janine and Tom are considering starting a new landscaping business. For legal reasons, they plan to operate the business as a corporation, in which they will be equal shareholders. For the �rst year of operations, they project the following items of income and expense. Projected taxable income for the new business for its �rst year of operations is: $148,000 $148,000 $150,500 $147,000 $445,000 + $1,000 - $165,000 - $110,000 - $23,000. Question 2 Selected Answer: True https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7376326_1&course_id=_146230_1&content_id=_3542556_1&out… 1/3 The goal of the quali�ed business income deduction is to provide tax savings to businesses operated in non- corporate forms, similar to the savings provided to corporate businesses through the reduction in the corporate tax rate to 21%. My Courses Resources 10 out of 10 points 10 out of 10 points https://elearning.villanova.edu/webapps/blackboard/execute/courseMain?course_id=_146230_1 https://elearning.villanova.edu/webapps/blackboard/content/listContent.jsp?course_id=_146230_1&content_id=_3542450_1&mode=reset https://elearning.villanova.edu/webapps/portal/execute/tabs/tabAction?tab_tab_group_id=_132_1 https://elearning.villanova.edu/webapps/portal/execute/tabs/tabAction?tab_tab_group_id=_97_1 https://elearning.villanova.edu/webapps/login/?action=logout 11/22/21, 12:07 PM Review Test Submission: Week 1 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7376326_1&course_id=_146230_1&content_id=_3542556_1&out… 2/3 Answers: True False Response Feedback: The QBI deduction lowers the e�ective tax rate on qualifying business income, similar to the savings provided to corporate businesses taxed at 21%. Question 3 Selected Answer: True Answers: True False The substance over form doctrine is applied to deny favorable tax consequences to a transaction that never actually occurred but is represented by the taxpayer to have transpired. Question 4 Selected Answer: a. Answers: a. b. c. d. Response Feedback: Which of the following statements regarding the ‘check-the-box’ regula�ons is FALSE? The default classifica�on of a foreign single-member LLC under the check-the-box regula�ons is a disregarded en�ty. The default classifica�on of a foreign single-member LLC under the check-the-box regula�ons is a disregarded en�ty. The default classifica�on of a domes�c single-member LLC under the check-the-box regula�ons is a disregarded en�ty. The default classifica�on of a domes�c LLC with two members under the check-the-box regula�ons is a partnership. A domes�c single-member LLC may elect under the check-the-box regula�ons to be taxed as a corpora�on. The default classifica�on of a foreign single-member LLC under the check-the-box regula�ons is a corpora�on. Question 5 Selected Answer: c. Answers: a. b. c. d. Response Feedback: Which of the following legal forms typically results in double taxa�on of opera�ng profits under the U.S. federal income tax system? C corpora�on Single-member LLC Partnership C corpora�on S corporation The income of partnerships and S corpora�ons is taxed once, to the owners when earned. A single- member LLC is typically a disregarded en�ty, with its income taxed once to the owner. The earnings of a C corpora�on are taxed once to the corpora�on and a second �me when distributed to the corporate shareholders as dividends. 0 out of 10 points 10 out of 10 points 10 out of 10 points 11/22/21, 12:07 PM Review Test Submission: Week 1 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7376326_1&course_id=_146230_1&content_id=_3542556_1&out… 3/3 Monday, November 22, 2021 3:07:16 PM EST Question 6 Selected Answer: b. Answers: a. b. c. d. Response Feedback: Fondue Corpora�on earned $1 million of taxable profit this year. A�er paying its federal income tax, Fondue distributed its a�er-tax profit to its sole shareholder, Colton, as a dividend. If Colton’s tax rate on dividend income is 20%, what is the combined corporate and shareholder effec�ve tax rate on Fondue’s $1 million of profit? 36.8% 54% 36.8% 47.2% 41% Fondue will owe $210,000 of federal income tax, leaving $790,000 to distribute to Colton ($1,000,000 - $210,000). Colton will owe $158,000 of federal income tax ($790,000 x 20%). Total tax paid by the corpora�on and its shareholder is $368,000 ($210,000 + $158,000). The combined corporate and shareholder effec�ve tax rate on Fondue’s profit is 36.8% ($368,000/$1,000,000). ← OK 10 out of 10 points 11/22/21, 12:08 PM Review Test Submission: Week 2 Assessment Quiz (B) – ... Fall21_LTX_2101_201 Week 2 Review Test Submission: Week 2 Assessment Quiz (B) Review Test Submission: Week 2 Assessment Quiz (B) User Course Test Started Submitted Due Date Status Attempt Score Time Elapsed Mr. Fred H. Taxation Corps & Shareholders Week 2 Assessment Quiz (B) 11/7/21 8:51 PM 11/7/21 9:46 PM 11/7/21 11:59 PM Completed 50 out of 60 points   55 minutes out of 1 hour Results Displayed All Answers, Submitted Answers, Correct Answers, Feedback, Incorrectly Answered Questions Question 1 Selected Answer: d. Answers: a. b. c. d. Response Feedback: Graham owns 100% of the outstanding stock of Cracker Inc. During the current year, Graham transferred equipment to Cracker in exchange for 10 addi�onal shares of stock and $5,000 cash. The equipment has a tax basis of $6,000 and a fair market value of $25,000 at the �me of the transfer. How much gain or loss does Graham realize and recognize on the exchange? $19,000 gain realized; $5,000 gain recognized $14,000 gain realized; $5,000 gain recognized $19,000 gain realized; $19,000 gain recognized $19,000 gain realized; $0 gain recognized $19,000 gain realized; $5,000 gain recognized Gain realized is $19,000 = $25,000 fair market value of transferred equipment - $6,000 tax basis. Gain recognized is $5,000, lesser of realized gain or $5,000 boot received. Question 2 Violet formed Venice Corporation by transferring the following assets in exchange for 100 shares of Venice common stock: Tax Basis   Fair Market Value Cash   $40,000   $40,000 Inventory    25,000        55,000 Land   350,000      205,000 Total $415,000 $300,000 What is Venice Corporation’s tax basis in the land received in the exchange? Selected Answer: a. $235,000 https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7412903_1&course_id=_146230_1&content_id=_3542540_1&out… 1/3 My Courses Resources 10 out of 10 points 10 out of 10 points Fred H. 20 https://elearning.villanova.edu/webapps/blackboard/execute/courseMain?course_id=_146230_1 https://elearning.villanova.edu/webapps/blackboard/content/listContent.jsp?course_id=_146230_1&content_id=_3542451_1&mode=reset https://elearning.villanova.edu/webapps/portal/execute/tabs/tabAction?tab_tab_group_id=_132_1 https://elearning.villanova.edu/webapps/portal/execute/tabs/tabAction?tab_tab_group_id=_97_1 https://elearning.villanova.edu/webapps/login/?action=logout 11/22/21, 12:08 PM Review Test Submission: Week 2 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7412903_1&course_id=_146230_1&content_id=_3542540_1&out… 2/3 Answers: a. b. c. d. Response Feedback: $235,000 $0 $205,000 $305,000 The aggregate fair market value of the transferred property ($300,000) is less than the aggregate tax basis of the transferred property ($415,000). Under Section 362(e)(2), the corporation must reduce the tax basis of property in which basis exceeds FMV by the excess of the aggregate basis over the aggregate FMV, or $115,000 ($415,000 - $300,000). The land is the only transferred asset for which basis exceeds FMV, thus the corporation’s basis in the land is $235,000 ($350,000 - $115,000). Question 3 Selected Answer: Answers: Response Feedback: Transferor Asset Adj. Basis FMV Leon Cash $15,000 $15,000 Leon Equipment $42,000 $35,000 Emma Undeveloped land $5,000 $55,000 Leon and Emma formed Ravello Corporation by transferring the following assets, each of which has been held long-term: In exchange, Leon received 50 shares of Ravello common stock (value - $50,000). Emma received 50 shares of Ravello common stock (value - $50,000) and $5,000 cash. What is Emma's tax basis in the 50 shares of Ravello received in the exchange? $50,000 $5,000 $10,000 $50,000 $0 $5,000 total basis of property given up + $5,000 gain recognized - $5,000 boot received. Question 4 Selected Answer: Answers: Transferor Asset Adj. Basis FMV Leon Cash $15,000 $15,000 Leon Equipment $42,000 $35,000 Emma Undeveloped land $5,000 $55,000 Leon and Emma formed Ravello Corporation by transferring the following assets, each of which has been held long-term: In exchange, Leon received 50 shares of Ravello common stock (value - $50,000). Emma received 50 shares of Ravello common stock (value - $50,000) and $5,000 cash. In determining Leon's holding period for his Ravello shares: Leon’s holding period tacks to the extent related to the transferred equipment and begins anew to the extent related to the cash. Leon’s holding period begins on the date of the exchange. 0 out of 10 points 10 out of 10 points 11/22/21, 12:08 PM Review Test Submission: Week 2 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7412903_1&course_id=_146230_1&content_id=_3542540_1&out… 3/3 Monday, November 22, 2021 3:08:13 PM EST Leon’s holding period include the holding period of the equipment transferred. Leon’s holding period tacks to the extent related to the transferred cash and begins anew to the extent related to the equipment. Leon’s holding period tacks to the extent related to the transferred equipment and begins anew to the extent related to the cash. Question 5 Selected Answer: d. Answers: a. b. c. d. Response Feedback: Sheila formed Grand Corporation by transferring land with basis of $20,000 and a fair market value of $75,000 to the corporation in exchange for 75 shares of common stock. She also received 25 shares of stock in exchange for services performed associated with the formation of the corporation. How much income or gain does Sheila recognize on the formation of the corporation? $80,000 gain/income realized; $25,000 recognized $80,000 gain/income realized; $0 recognized $25,000 gain/income realized; $25,000 recognized $25,000 gain/income realized; $0 recognized $80,000 gain/income realized; $25,000 recognized Sheila realizes a $55,000 gain on the transfer of the land ($75,000 fair market value minus $20,000 basis) and $25,000 ordinary income on receipt of stock for services. Because the transac�on qualifies under Sec�on 351, the gain on transfer of the land is not currently recognized. However, the receipt of stock for services does not qualify for non-recogni�on under Sec�on 351 and Sheila recognizes $25,000 of ordinary income. Question 6 Selected Answer: b. Answers: a. b. c. d. Response Feedback: Stephano Corporation was formed this year and commenced business on July 1. It incurred $45,000 of organization costs this year. How much of these costs can Stephano deduct this year, including any allowable amortization? $6,333 $0 $6,333 $7,667 $1,500 Stephano may deduct $5,000 of organization costs immediately. The remainder is amortized over 180 months. $40,000 x 6/180 = $1,333 current year amortization, for a total deduction of $6,333. ← OK 10 out of 10 points 10 out of 10 points 11/22/21, 12:08 PM Review Test Submission: Week 3 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7446926_1&course_id=_146230_1&content_id=_3542623_1&out… 1/3 Fall21_LTX_2101_201 Week 3 Review Test Submission: Week 3 Assessment Quiz (B) Review Test Submission: Week 3 Assessment Quiz (B) User Course Test Started Submitted Due Date Status Attempt Score Time Elapsed Mr. Fred H. Taxation Corps & Shareholders Week 3 Assessment Quiz (B) 11/14/21 7:44 PM 11/14/21 8:25 PM 11/14/21 11:59 PM Completed 60 out of 60 points   40 minutes out of 1 hour Results Displayed All Answers, Submitted Answers, Correct Answers, Feedback, Incorrectly Answered Questions Question 1 Selected Answer: d. Answers: a. b. c. d. Response Feedback: During the current year, Great Corporation paid $450,000 to Daniel, the holder of a Great investment. The Corporation has been highly pro�table and has $20 million of accumulated earnings and pro�ts. If Daniel's investment is classi�ed as debt instead of equity, with $400,000 of the payment considered a principal payment on such debt, which of the following accurately describes the tax consequences of this payment to both Great and Daniel? Great is permitted a $50,000 interest expense deduction. Daniel recognizes $50,000 of ordinary and income and has a $400,000 nontaxable return of his investment. Great is permitted a $450,000 deduction for the payment to Daniel. Daniel recognizes $450,000 of ordinary income. Great is permitted no deduction for the payment to Daniel. Daniel recognizes $450,000 of dividend income. Great is permitted no deduction for the payment to Daniel.  Daniel recognizes $50,000 of ordinary and income and has a $400,000 nontaxable return of his investment. Great is permitted a $50,000 interest expense deduction. Daniel recognizes $50,000 of ordinary and income and has a $400,000 nontaxable return of his investment. If the investment is characterized as debt, $50,000 of the $450,000 payment is considered interest on the debt. Great can deduct the interest payment, but not the principal payment. Daniel must recognize ordinary interest income of $50,000, and has $400,000 nontaxable return of his investment. Question 2 Alicia works full-time as an accountant and is a shareholder in Jackson Corporation. Several years ago, Alicia loaned the corporation $50,000. This year, Jackson experienced �nancial di�culty and sought to restructure its debt commitments. Alicia agreed to take $45,000 in satisfaction of the outstanding loan.  My Courses Resources 10 out of 10 points 10 out of 10 points Fred H. 20 https://elearning.villanova.edu/webapps/blackboard/execute/courseMain?course_id=_146230_1 https://elearning.villanova.edu/webapps/blackboard/content/listContent.jsp?course_id=_146230_1&content_id=_3542452_1&mode=reset https://elearning.villanova.edu/webapps/portal/execute/tabs/tabAction?tab_tab_group_id=_132_1 https://elearning.villanova.edu/webapps/portal/execute/tabs/tabAction?tab_tab_group_id=_97_1 https://elearning.villanova.edu/webapps/login/?action=logout 11/22/21, 12:08 PM Review Test Submission: Week 3 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7446926_1&course_id=_146230_1&content_id=_3542623_1&out… 2/3 Selected Answer: c. Answers: a. b. c. d. Response Feedback: Assuming this debt was not evidenced by a security and Alicia is not in the business of lending money, what is the amount and character of Alicia's loss on satisfaction of the debt? $5,000 short-term capital loss $50,000 short-term capital loss $0 loss $5,000 short-term capital loss $5,000 ordinary loss Because Alicia is not in the business of lending money, her loss is considered a a nonbusiness bad debt, resulting in a short-term capital loss of $5,000 ($50,000 face amount of the debt - $45,000 payment received). Question 3 Selected Answer: a. Answers: a. b. c. d. Response Feedback: XYZ Inc. has taxable income this year (post-2017) of $795,000, computed as follows: Sales revenue $1,388,000 Dividend income 50,000 MACRS depreciation (140,000) Salary expense (320,000) Operating expenses (143,000) Deductible meals (50%) (15,000) Dividends-received deduction (25,000) Taxable income $ 795,000 XYZ also paid $5,000 of nondeductible �nes this year and $166,000 of federal income tax. ADS depreciation would have been $122,000. XYZ’s current year earnings and profits are $652,000 $652,000 $762,000 $657,000 $627,000 $795,000 taxable income + $25,000 dividends-received deduction + $18,000 excess of MACRS over ADS depreciation - $15,000 nondeductible meals - $5,000 nondeductible penalty - $166,000 federal income tax. = $652,000 current E&P. Question 4 Selected Answer: a. Answers: a. Gram Corporation has $100,000 of accumulated earnings and pro�ts at the beginning of the year. Before considering the e�ects of any distributions, Gram’s current earnings and pro�ts are $45,000. Gram distributes land to its sole shareholder with a tax basis of $125,000 and a fair market value of $180,000. How much dividend income must Gram’s shareholder recognize as a result of this distribution? $180,000 $180,000 10 out of 10 points 10 out of 10 points 11/22/21, 12:08 PM Review Test Submission: Week 3 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7446926_1&course_id=_146230_1&content_id=_3542623_1&out… 3/3 Monday, November 22, 2021 3:08:44 PM EST b. c. d. Response Feedback: $0 $125,000 $145,000 Gram recognizes gain of $55,000 ($180,000 - $125,000) on the distribution of the land, increasing its current earnings and pro�ts to $100,000. The dividend equals the lesser of total E&P ($200,000) or the fair market value of the land ($180,000). Question 5 Selected Answer: d. Answers: a. b. c. d. Response Feedback: Max is the sole shareholder of Cramer Corporation. Cramer has current and accumulated earnings and pro�ts of $200,000. Max has a tax basis in his Cramer stock of $50,000. If Cramer distributes $350,000 to Max, which of the following accurately describes his tax consequences from this distribution? $200,000 dividend income, $50,000 return of capital and $100,000 capital gain $300,000 dividend income and $50,000 return of capital  $200,000 dividend income and $150,000 return of capital $350,000 dividend income $200,000 dividend income, $50,000 return of capital and $100,000 capital gain The distribution is �rst considered a dividend to the extent of Cramer's E&P ($200,000), then a return of capital to the extent of Max's tax basis in the Cramer stock ($50,000). The remaining $100,000 distribution is treated as capital gain.  Question 6 Selected Answer: a. Answers: a. b. c. d. Response Feedback: Wilson, Inc., a calendar year corporation, has beginning of year accumulated earnings and profits of $70,000 and a current deficit in earnings and profits of $(90,000). On April 30, Wilson distributed $50,000 to its sole shareholder.  What is Wilson's accumulated earnings and pro�ts at year end? $(60,000) $(60,000) $0 $(20,000) $(70,000) To determine the amount of the distribution considered a dividend, the current de�cit is pro-rated to April 30. $(90,000) x 4/12 = $(30,000) de�cit at April 30. E&P available for distribution at that date is $40,000 = $70,000 beginning E&P - $30,000 de�cit at April 30.  Ending accumulated E&P is $(60,000) = $70,000 beginning accumulated E&P - $90,000 current de�cit - $40,000 dividend distribution. ← OK 10 out of 10 points 10 out of 10 points 11/22/21, 12:09 PM Review Test Submission: Week 4 Assessment Quiz (B) – ... Fall21_LTX_2101_201 Week 4 Review Test Submission: Week 4 Assessment Quiz (B) Review Test Submission: Week 4 Assessment Quiz (B) User Course Test Started Submitted Due Date Status Attempt Score Time Elapsed Mr. Fred H. Taxation Corps & Shareholders Week 4 Assessment Quiz (B) 11/21/21 8:11 PM 11/21/21 9:12 PM 11/21/21 11:59 PM Completed 20 out of 60 points   1 hour, 0 minute out of 1 hour Results Displayed All Answers, Submitted Answers, Correct Answers, Feedback, Incorrectly Answered Questions Question 1 Selected Answer: d. Answers: a. b. c. d. Response Feedback: Bud is Ronald’s father. Ronald is married to Lisa. Haley is Ronald and Lisa’s daughter. Haley is married to Nate. Family Corporation (FC) has 100 shares of common stock outstanding. Bud owns 60 shares of FC, Ronald owns 20 shares of FC and Haley owns 10 shares of FC. The remaining 10 shares of FC are owned by ABC Partnership, in which Ronald is a 40% partner. ABC partnership owns 80% of the 100 shares of common stock outstanding in GHI Corporation. The remaining 20 shares are owned by Haley. How many shares of GHI does Lisa own? 52 40 100 60 52 Lisa owns 52 shares of GHI. ABC owns 100 shares of GHI. Ronald is a 40% partner in ABC, so he is deemed to own 32 shares of GHI (80 x 40%) via entity to owner attribution. Ronald’s ownership is attributed to Lisa, his wife, via family attribution. Haley’s ownership of 20 shares is also attributed to Lisa, her mother, via family attribution. Question 2 Selected Answer: d. Answers: a. https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7479616_1&course_id=_146230_1&content_id=_3542707_1&out… 1/4 In order for a stock redemption to qualify for exchange treatment, which of the following statements regarding a waiver of family attribution is FALSE? A waiver of family attribution only applies to redemptions in complete termination of a shareholder's interest under Section 302(b)(3). It cannot be used to qualify under other paragraphs of Section 302(b). My Courses Resources 10 out of 10 points 0 out of 10 points Fred H. 20 https://elearning.villanova.edu/webapps/blackboard/execute/courseMain?course_id=_146230_1 https://elearning.villanova.edu/webapps/blackboard/content/listContent.jsp?course_id=_146230_1&content_id=_3542453_1&mode=reset https://elearning.villanova.edu/webapps/portal/execute/tabs/tabAction?tab_tab_group_id=_132_1 https://elearning.villanova.edu/webapps/portal/execute/tabs/tabAction?tab_tab_group_id=_97_1 https://elearning.villanova.edu/webapps/login/?action=logout 11/22/21, 12:09 PM Review Test Submission: Week 4 Assessment Quiz (B) – ... b. c. d. Response Feedback: A waiver of family attribution requires the redeemed shareholder to �le an agreement with the Service, extending the statute of limitations with respect to the redemption transaction and agreeing to notify the Service of any acquisition of a prohibited interest within 10 years after the redemption. If a shareholder waives family attribution, then re-acquires an interest in the corporation by inheritance, the redemption no longer quali�es for exchange treatment and is subject to Section 301. After a waiver of family attribution, the redeemed shareholder can have no interest in the corporation, other than as a creditor, for 10 years. A waiver of family attribution only applies to redemptions in complete termination of a shareholder's interest under Section 302(b)(3). It cannot be used to qualify under other paragraphs of Section 302(b). Reacquisition of in interest by bequest or inheritance is the only example of a prohibited interest that will not invalidate a waiver of family attribution. Question 3 Selected Answer: a. Answers: a. b. c. d. Response Feedback: Mitchell purchased 40 shares of Seal Inc. stock �ve years ago for $100,000. This year, Seal redeemed 10 of Mitchell's shares in a redemption qualifying for exchange treatment under Section 302(b). Mitchell's $25,000 basis in the redeemed stock Increases his basis in the 30 shares of Seal stock still owned. Increases his basis in the 30 shares of Seal stock still owned. Produces neither a basis o�set or a basis increase, but is forfeited for tax purposes. Produces an ordinary loss deduction. O�sets the redemption proceeds, producing less gain or more loss associated with the redemption. In a qualifying redemption, the shareholder is permitted to offset the basis of the redeemed stock against the redemption proceeds in determining realized and recognized gain or loss. Question 4 Selected Answer: c. Answers: a. b. c. d. https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7479616_1&course_id=_146230_1&content_id=_3542707_1&out… 2/4 Prior to a redemption transaction, Mark owned 60 of the 100 outstanding shares of Melon Corporation. This year, Melon redeemed 20 of Mark's shares. Which of the following statements correctly characterizes Mark's tax consequences from the redemption? The redemption does not qualify for exchange treatment and will be treated as a distribution subject to Section 301. The redemption quali�es for exchange treatment under Section 302(b)(2). After redemption Mark owns 40% of the outstanding shares, which is less than 50% and less than 80% of what he owned before the redemption (80% x 60% = 48% > 40%). Mark's redemption quali�es for exchange treatment as a partial liquidation under Section 302(b)(4). The redemption does not qualify for exchange treatment and will be treated as a distribution subject to Section 301. 0 out of 10 points 10 out of 10 points 11/22/21, 12:09 PM Review Test Submission: Week 4 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7479616_1&course_id=_146230_1&content_id=_3542707_1&out… 3/4 Response Feedback: The redemption does not qualify for exchange treatment under Section 302(b)(2), but should qualify as not essentially equivalent to a dividend under Section 302(b)(1).  After the redemption, Mark owns 40 of 80 shares outstanding, which is 50%. He does not meet either the 50% test or the 80% test of Section 302(b)(2). Because he still owns 50%, he likely cannot qualify under Section 302(b)(1). Since there is no indication that the redemption is a partial liquidation of the corporation, the transaction will be treated as a distribution subject to Section 301. Question 5 Selected Answer: c. Answers: a. b. c. d. Response Feedback: Color Corporation has 100 shares of common stock and 100 shares of nonvoting preferred stock outstanding. The preferred is not convertible into common stock and is not Section 306 stock. Mary owns 50 shares of Color common stock and 20 shares of preferred stock. Nathan owns 25 shares of Color common stock and 40 shares of preferred stock. The remaining stock is owned by Owen. None of the shareholders are related.  What are the tax consequences to Nathan if Color redeems all of his preferred stock? The redemption quali�es for exchange treatment under Section 302(b)(1) as not essentially equivalent to a dividend. The redemption does not qualify for exchange treatment and is treated as a distribution subject to Section 301. The redemption quali�es for exchange treatment under Section 302(b)(2) as a substantially disproportionate distribution. The redemption quali�es for exchange treatment under Section 302(b)(1) as not essentially equivalent to a dividend. The redemption quali�es for exchange treatment under Section 302(b)(3) as a complete termination of Nathan's interest. After the redemption, Nathan still owns 25 common shares, so the redemption is not a complete termination. His voting power in the corporation has not changed, so Section 302(b)(1) and (2) cannot apply. The redemption is treated as a distribution subject to Section 301. Question 6 Selected Answer: b. Answers: a. b. c. d. Response Feedback: Last Corporation has $200,000 of accumulated earnings and pro�ts at the beginning of the year and $40,000 of current earnings and pro�ts. During the year, Last pays $100,000 to redeem 20 percent of its stock in a transaction NOT qualifying for exchange treatment under Section 302(b).  Last's ending accumulated earnings and pro�ts is $192,000 $240,000 $192,000 $140,000 $200,000 Before the redemption, Last has $240,000 of current and accumulated E&P. Because the redemption does not qualify for exchange treatment, it is subject to Sec. 301, which treats the redemption as a dividend to the extent of E&P. Last had sufficient E&P that the entire distribution is a dividend. E&P is 0 out of 10 points 0 out of 10 points 11/22/21, 12:09 PM Review Test Submission: Week 4 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7479616_1&course_id=_146230_1&content_id=_3542707_1&out… 4/4 Monday, November 22, 2021 3:09:11 PM EST reduced by the amount of the redemption, $100,000. Ending accumulated E&P is $140,000 = $200,000 + $40,000 - $100,000. ← OK Fall21_LTX_2101_201 Week 5 Review Test Submission: Week 5 Assessment Quiz (B) Review Test Submission: Week 5 Assessment Quiz (B) User Course Test Started Submitted Due Date Status Mr. Fred H. Taxation Corps & Shareholders Week 5 Assessment Quiz (B) 11/28/21 5:44 PM 11/28/21 6:50 PM 11/28/21 11:59 PM Completed Attempt Score 30 out of 60 points Time Elapsed 1 hour, 6 minutes out of 1 hour OVER TIME Results Displayed All Answers, Submitted Answers, Correct Answers, Feedback, Incorrectly Answered Questions Question 1 Selected Answer: True Answers: True False Response Feedback: The conceptual rationale underlying the tax treatment of stock distributions is that a distribution of additional shares of stock that changes or has the potential to change the proportionate interest of the shareholders should be nontaxable. A distribution of additional shares of stock that changes or has the potential to change the proportionate interest of the shareholders should be taxable. A distribution that does not change or does not have the potential to change the proportionate interest of the shareholders is not a taxable event. Question 2 Resources 0 out of 10 points 10 out of 10 points Fred H. Page 1 of 5Review Test Submission: Week 5 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7496... 12/11/2021 Selected Answer: a. Answers: a. b. c. d. Response Feedback: Grant owns 1,000 common shares of Liston Corporation was a tax basis of $12,000. Grant received a taxable stock distribution of 100 Liston preferred shares. Following the distribution, Liston common stock has a value of $10 per share and Liston preferred stock has a value of $50 per share. What is Grant's tax basis in the preferred and common shares after the distribuiton? $12,000 tax basis in common shares and $5,000 tax basis in preferred shares $12,000 tax basis in common shares and $5,000 tax basis in preferred shares $12,000 tax basis in common shares and zero tax basis in preferred shares $8,000 tax basis in preferred shares and $4,000 tax basis in common shares $4,000 tax basis in preferred shares and $8,000 tax basis in common shares Because the distribution of the preferred shares is taxable, their basis equals fair market value. The basis of the common shares remains at $12,000. Question 3 Selected Answer: a. In year 1, Ellis Corporation distributed Section 306 stock with a value of $15,000 to its sole shareholder, Marco. Marco allocated $10,000 of basis from his common stock to the Section 306 stock. At the time of the distribution, Ellis had earnings and profits of $18,000.  In year 3, Marco sold the Section 306 stock to an unrelated third party for $20,000. At the time of the sale, Ellis had earnings and profits of $25,000. Which of the following statements accurately describes Marco's tax consequences from the sale of the Section 306 stock? Marco recognizes $15,000 of dividend income and $5,000 nontaxable return of capital. His remaining $5,000 basis in the Section 306 stock is reallocated back to his common stock. 10 out of 10 points Page 2 of 5Review Test Submission: Week 5 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7496... 12/11/2021 Answers: a. b. c. d. Response Feedback: Marco recognizes $15,000 of dividend income and $5,000 nontaxable return of capital. His remaining $5,000 basis in the Section 306 stock is reallocated back to his common stock. Marco recognizes $10,000 of dividend income on the sale of the Section 306 stock. Marco recognizes $20,000 of dividend income. His $10,000 basis in the Section 306 stock is reallocated back to his common stock. Marco recognizes $10,000 of capital gain on the sale of the Section 306 stock. The sale of Section 306 stock triggers dividend income to the extent a cash distribution at the time the stock was received would have been a dividend. Remaining sales proceeds may reduce the basis of the stock. Any basis not offset against the sales proceeds are reallocated back to the stock on which the Section 306 stock distribution was made. Question 4 Selected Answer: False Answers: True False Response Feedback: True or False: Jack owns 100 percent of the outstanding stock of ABC Inc. and 100 percent of the outstanding stock of XYZ Inc. Jack sold 80 percent of his XYZ shares to ABC. Under Section 304, Jack's sale of XYZ shares to ABC qualifies for sale or exchange treatment as a substantially disproportionate distribution. Because Jack owns 100 percent of ABC, under Section 318(a)(2) he continues to own indirectly the 80 percent of XYZ shares he sold. Thus, after the transaction he directly and indirectly owns 100 percent of XYZ. The sale does not qualify for exchange treatment under Section 302(b), and he will have a Section 301 distribution for tax purposes. 10 out of 10 points Page 3 of 5Review Test Submission: Week 5 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7496... 12/11/2021 Question 5 Selected Answer: False Answers: True False Response Feedback: True or False: Noah is the sole shareholder of Ark Corporation. This year, Noah contributed Ark stock with a value of $100,000 to his Alma Mater, State University. Prior to the contribution, State University agreed, in writing, that it would tender the shares to Ark for redemption for cash. Although Noah is entitled to a charitable contribution deduction for the contribution, he is also treated as receiving a constructive dividend equal to the redemption amount. Constructive dividend treatment applies if the university is legally bound or can be compelled by the corporation to surrender the shares for redemption. Question 6 Selected Answer: c. Answers: a. Max and Emma owned all of the outstanding stock of Group Corporation. Max and Emma are unrelated. An agreement between Max and Emma provided that upon the death of either shareholder, the surviving shareholder would buy all of the Group stock owned by the decedent at the time of death. During the current year, Emma died. Max did not have sufficient cash to buy the shares, and instead caused Group to redeemed Emma's shares from her estate. What are the tax consequences of this redemption to Max?   Max was only secondarily liable under the agreement. Since he was not primarily obligated to purchase the Group stock from Emma’s estate, he has not received a constructive dividend when Group redeemed the shares. Max recognizes no gain or loss when Group redeems the shares, because he is not involved in the transaction. 0 out of 10 points 0 out of 10 points Page 4 of 5Review Test Submission: Week 5 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7496... 12/11/2021 Saturday, December 11, 2021 5:48:45 PM EST b. c. d. Response Feedback:   Max must recognize a constructive dividend equal to the redemption price of the shares, because the corporation satisfied his obligation to purchase the stock   Max was only secondarily liable under the agreement. Since he was not primarily obligated to purchase the Group stock from Emma’s estate, he has not received a constructive dividend when Group redeemed the shares. Max is treated as though he purchased the shares and then contributed them to the corporation in a nontaxable transaction. Max has a primary obligation to purchase Emma's shares under the buy-sell agreement. Because the corporation satisfied his obligation, he has a constructive dividend. ← OK Page 5 of 5Review Test Submission: Week 5 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7496... 12/11/2021 Fall21_LTX_2101_201 Week 6 Review Test Submission: Week 6 Assessment Quiz (B) Review Test Submission: Week 6 Assessment Quiz (B) User Course Test Started Submitted Due Date Status Mr. Fred H. Taxation Corps & Shareholders Week 6 Assessment Quiz (B) 12/6/21 9:14 PM LATE 12/6/21 10:14 PM LATE 12/5/21 11:59 PM Completed Attempt Score 20 out of 60 points Time Elapsed 1 hour, 0 minute out of 1 hour Results Displayed All Answers, Submitted Answers, Correct Answers, Feedback, Incorrectly Answered Questions Question 1 Selected Answer: d. Answers: a. Gamma Corporation is owned 60% by Harold and 40% by Jamal. Gamma plans to liquidate and distribute its assets to its shareholders. Gamma’s assets consist of $40,000 cash and land with a fair market value of $60,000 and a tax basis of $85,000. The land was contributed to Gamma 18 months ago as a contribution to capital when its fair market value was $72,000. If Gamma distributes the land to Harold and Jamal as tenants in common in proportion to their stock interests and distributes 40% of the cash to Jamal and 60% of the cash to Harold, which of the statutory provisions listed below could apply to limit Gamma’s ability to deduct its $25,000 realized loss on the distribution of the land? Section 336(d)(2) applies, but Section 336(d)(1) does not Both Sections 336(d)(1) and 336(d)(2) apply to this transaction Resources 0 out of 10 points Fred H. Page 1 of 5Review Test Submission: Week 6 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7539... 12/11/2021 b. c. d. Response Feedback: Section 336(d)(1) applies, but Section 336(d)(2) does not Neither Sections 336(d)(1) or 336(d)(2) apply to this transaction Section 336(d)(2) applies, but Section 336(d)(1) does not Section 336(d)(1) applies because the land is disqualified property under Section 336(d)(1)(B). The loss will be disallowed to the extent the property is distribution to Harold, a Section 267 related party. Thus, Section 336(d) (1) disallows $15,000 ($25,000 x 60%) of the loss. Section 336(d)(2) applies because the land was acquired within 2 years of adoption of the plan of liquidation. Section 336(d)(2) will disallow a deduction for the remaining pre-contribution loss. The total pre- contribution loss is $13,000, of which $7,800 ($13,000 x 60%) has already been disallowed by Section 336(d)(1). Thus, Section 336(d)(2) disallows the remaining $5,200 of pre-contribution loss. Question 2 Selected Answer: a. Answers: a. South Corporation liquidated this year, distributing its assets to its shareholders. Jenna, one of South's shareholders, had a tax basis in her South stock of $40,000. In liquidation, she received cash of $50,000 and inventory with a tax basis to the corporation of $10,000 and a value of $25,000. Which of the following accurately describes Jenna's tax consequences from the liquidation? Jenna recognizes $15,000 of ordinary gain and $20,000 of capital gain. Her tax basis in the inventory is $25,000. Jenna recognizes $15,000 of ordinary gain and $20,000 of capital gain. Her tax basis in the inventory is $25,000. 0 out of 10 points Page 2 of 5Review Test Submission: Week 6 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7539... 12/11/2021 b. c. d. Response Feedback: Jenna recognizes $10,000 of capital gain. Her tax basis in the inventory is zero. Jenna recognizes $20,000 of capital gain. Her tax basis in the inventory is $10,000. Jenna recognizes $35,000 of capital gain. Her tax basis in the inventory is $25,000. Jenna recognizes gain equal to the difference between her tax basis in the South stock and the value of the assets received in liquidation. The gain is a capital gain because the stock is a capital asset. Her tax basis in the inventory equals its fair market value. Question 3 Selected Answer: b. Answers: a. b. c. Books Corporation is owned 80% by Shelf Corporation and 20% by Olivia, and unrelated individual. Olivia’s tax basis in her Books stock is $25,000. As part of a plan of liquidation, Books distributes inventory to Olivia with a fair market value of $40,000. Books has a tax basis in the inventory of $13,000. Which of the following statements regarding this liquidating distribution is TRUE? Olivia recognizes $13,000 of ordinary income on receipt of the inventory in liquidation of her stock interest in Books. Olivia must recognize $15,000 of capital gain on receipt of the inventory in liquidation of her stock interest in Books. Olivia recognizes $13,000 of ordinary income on receipt of the inventory in liquidation of her stock interest in Books. Because Books is a controlled subsidiary of Shelf, Books does not recognize its realized gain on the distribution of the inventory to Olivia. 0 out of 10 points Page 3 of 5Review Test Submission: Week 6 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7539... 12/11/2021 d. Response Feedback: Olivia’s tax basis in the inventory received in the liquidation is $13,000. As a minority shareholder, Olivia is not eligible for the nonrecognition treatment afforded subsidiary liquidations by Section 332. Under Section 331, she recognizes gain on the disposition of her Books stock. Since stock is typically a capital asset, her $15,000 gain should be a capital gain. Under Section 334(a), Olivia’s basis in the inventory received in the liquidation equals its fair market value. Question 4 Selected Answer: b. Answers: a. b. c. d. Response Feedback: Ryder Corporation, a wholly-owned subsidiary of Quinn Inc., liquidated this year. Ryder distributed to Quinn in liquidation cash of $2 million and equipment with a value of $4 million and a tax basis of $2.5 million. Quinn's tax basis in Ryder stock was $3.2 million. How much gain or loss does Quinn realize and recognize as a result of the liquidation? $2.8 million of gain realized; zero recognized Zero gain realized and recognized $2.8 million of gain realized; zero recognized $1.5 million of gain realized; zero gain recognized $4.3 million of gain realized; zero recognized Quinn receives assets with a total value of $6 million. Its basis in Ryder stock is $3.2 million, resulting in $2.8 million of gain realized. Under Section 332, none of the gain is recognized, since Quinn is Ryder's controlling parent corporation. Question 5 In liquidation of its wholly-owned subsidiary, Jennings Corporation received inventory with a value of $400,000 and a tax basis of $320,000, land with a value of $500,000 and a tax basis of $650,000, and equipment with a value of $200,000 and a tax basis of 10 out of 10 points 0 out of 10 points Page 4 of 5Review Test Submission: Week 6 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7539... 12/11/2021 Saturday, December 11, 2021 5:56:42 PM EST Selected Answer: b. Answers: a. b. c. d. Response Feedback: $80,000. What is Jennings tax basis in the assets received in liquidation of the subsidiary corporation? Inventory, $320,000; land, $500,000; and equipment, $80,000 Inventory, $400,000; land, $650,000; and equipment, $200,000 Inventory, $320,000; land, $500,000; and equipment, $80,000 Inventory, $400,000; land, $500,000; and equipment, $200,000 Inventory, $320,000; land, $650,000; and equipment, $80,000 Jennings takes a carryover basis in the distributed assets, equal to their basis in the hands of the subsidiary. Question 6 Selected Answer: False Answers: True False Response Feedback: No gain or loss is recognized if, as part of a plan of liquidation, a subsidiary corporation transfers property to its parent corporation in satisfaction of debt owed to the parent. See Section 337(b)(1). ← OK 10 out of 10 points Page 5 of 5Review Test Submission: Week 6 Assessment Quiz (B) – ... https://elearning..edu/webapps/assessment/review/review.jsp?attempt_id=_7539... 12/11/2021 Review Test Submission_ Week 1 Assessment Quiz (B) Review Test Submission_ Week 2 Assessment Quiz (B) Review Test Submission_ Week 3 Assessment Quiz (B) Review Test Submission_ Week 4 Assessment Quiz (B) Review Test Submission_ Week 5 Assessment Quiz (B) Review Test Submission_ Week 6 Assessment Quiz (B)