EA2 Study Unit 16.1-16.3 Corporate Redemptions and Liquidations

A 100% shareholder inherits stock with a stepped-up basis and receives a dividend distribution from the corporation. How does this dividend distribution affect the shareholder's stock basis?

Which of the conditions must be met for a stock redemption to qualify as a partial liquidation?

If a shareholder receives stock through inheritance and the distribution during liquidation is less than the stepped-up basis, what is the likely tax consequence?

Which type of shareholder qualifies for capital gain treatment on distributions received during a partial liquidation?

Zebra Corporation distributes property worth $75,000 (adjusted basis of $40,000) to Tiger Corporation in a partial liquidation. Tiger Corporation has a $25,000 adjusted basis in its Zebra stock. Zebra's earnings and profits exceed the distribution amount. What is the tax effect on Tiger Corporation?

Which of the following conditions would qualify a stock redemption as a sale, rather than dividend, treatment?

If a shareholder owns less than 50% of the voting power after redemption, the redemption is always considered substantially disproportionate.

What is the primary requirement for a stock redemption to be considered 'not essentially equivalent to a dividend'?

For a redemption to be substantially disproportionate, the shareholder must own less than ______ % of the voting power after the redemption.

Which scenario typically requires a shareholder to lose control to qualify for 'not essentially equivalent to a dividend' status?

Match each redemption type with its primary characteristic or condition:

Carol owns 275 of Allegiance Corporation’s 1,000 outstanding shares. The corporation redeems 200 shares from other shareholders. What is Carol's ownership percentage after the redemption?

The treatment of a redemption as either a sale or a dividend is determined collectively for all shareholders involved.

According to constructive ownership rules, which family members' stock ownership is directly attributed to a shareholder?

If a shareholder is a partner in a partnership, the stock owned by that partnership is considered to be owned by the shareholder for constructive ownership purposes, but the reverse is not true.

In a complete liquidation, after all creditors and shareholders have been paid, what is the value of remaining corporate assets?

In a corporate liquidation, the order of payment is: secured creditors, unsecured creditors, and lastly, ____________.

Shareholder A owns 40% of Corporation X's stock. Corporation X owns stock in Corporation Y. Is Shareholder A deemed to constructively own Corporation Y's stock?

Holding an option to buy stock is considered a form of constructive ownership.

Which of the following is the correct order of asset distribution in a complete corporate liquidation?

Match the relationship with the corresponding constructive ownership rule:

What is the primary condition for a stock redemption to be considered 'substantially disproportionate'?

For a complete termination of a shareholder's interest, the shareholder can retain a consulting role within the corporation without affecting the validity of the termination.

List two of the three requirements that must be met to waive the family attribution rules in a stock redemption.

An estate may treat a qualifying redemption (to pay death taxes) as a sale if the redeemed stock is valued at more than ______ % of the gross estate, net of deductions allowed.

Carol owns 275 of the 1,000 shares of Allegiance Corporation. The corporation redeems 200 shares. How many shares does Carol need to have redeemed for the redemption to be substantially disproportionate?

Which of the following deductions are considered when determining if the redeemed stock is valued at more than 35% of the gross estate?

If a shareholder waives the family attribution rules, they are permanently barred from acquiring any interest in the corporation, even through inheritance.

To waive family attribution rules, a written agreement must be filed with the ________ stating that they will be notified if a prohibited interest is acquired.

In a complete corporate liquidation, what happens to any unused, unexpired Net Operating Losses (NOLs), capital losses, and charitable contribution carryover amounts?

A shareholder's holding period for distributed property in a complete liquidation includes the holding period of the liquidated corporation.

In a complete corporate liquidation, how does a shareholder treat amounts distributed?

Amounts realized in a corporate liquidation include money and the ______ of other distributed property received.

Shareholder S receives a liquidating distribution of property subject to a liability. How does this liability affect the amount realized by S?

When a series of liquidating distributions is made to a shareholder, which method should be used for recognizing gain or loss?

Shareholder P receives a liquidating distribution and recognizes a gain. What determines the character of the recognized gain or loss?

A corporation must file Form 966 to report the adoption of a plan for complete liquidation within 60 days of adoption.

In a complete liquidation, a corporation distributes land with a fair market value (FMV) of $50,000 and an adjusted basis of $20,000. The land is subject to a liability of $60,000, which the shareholder assumes. What is the corporation's recognized gain?

A corporation can recognize losses on distributions in complete liquidation, even if the distributee shareholder is related, as long as the distribution is pro rata.

Zaige Corporation distributes land with an adjusted basis of $19,000 to its sole shareholder during complete liquidation. The land is subject to a liability of $98,000 assumed by the shareholder. If the land's FMV is $71,000, what is Zaige Corporation's recognized gain?

When a shareholder assumes liabilities exceeding the fair market value of distributed property, the fair market value is treated as no less than the amount of the __________.

Match the term with the correct definition:

A corporation contributes property with a basis of $50,000 and a FMV of $30,000 to its subsidiary. Later, the corporation liquidates and distributes the property. How does the precontribution loss affect the loss recognized on distribution?

If a corporation distributes an asset acquired within five years through a capital contribution to a more-than-50% shareholder in a non-pro rata distribution, any realized loss is permanently disallowed.

Which situation would trigger a disallowance of losses during a corporate liquidation?

Which of the following actions by a taxpayer would prevent the IRS from shortening the period for assessing tax liability, even if Form 4810 is filed?

A corporation must recognize both gains and losses when making distributions during a partial liquidation.

What form is the IRS requires a corporation to file for each calendar year in which it makes partial distributions of $600 or more under a plan of complete liquidation?

For a noncorporate shareholder, a distribution is treated as a sale to the extent it is (in redemption) in __________ liquidation of the corporation.

Which statement accurately describes the deductibility of expenses during a corporate liquidation?

Pro rata distributions automatically disqualify a distribution from being treated as a partial liquidation resulting in sale treatment.

Match each term with its correct description related to corporate liquidations and distributions:

A corporation receives a distribution in redemption for partial liquidation of another corporation. How is this distribution treated for tax purposes?

Stepped Up Basis

Partial Liquidation

Redemption vs. Distribution

Corporate Inheritance Rule

Tax Treatment of Corporations

Redemptions that qualify

Not Essentially Equivalent

Reduction in voting power

Substantially Disproportionate

Testing Disproportionate Redemption

Control Loss Example

Shareholder's Voting Power

Constructive Ownership

Substantially Disproportionate Redemption

Ownership Threshold

Minimum Shares Redeemed

Termination of Interest

Family Attribution Rules

Ten-Year Interest Rule

Qualifying Redemption for Estate

Corporate Gains Recognition

Asset-by-Asset Basis

Fair Market Value (FMV)

Character of Amounts Recognized

Recognized Gain Formula

Corporate Losses Recognition

Precontribution Loss

Loss Carryovers

Shareholder Family Stock

Partnership Stock Ownership

Estate or Trust Stock

Corporate Ownership Threshold

Liquidation Process

Secured vs. Unsecured Creditors

Distribution of Assets

Form 1099-DIV

Liquidation Expenses

Prompt Assessment Request

Tax Assessment Exceptions

Partial Liquidation Gain

Dividends-Received Deduction

Plan for Partial Liquidation

Pro Rata Distributions

Complete Liquidation Treatment

Capital Recovery

Amount Realized

Series of Liquidating Distributions

Character of Recognized Gain

Basis in Distributed Property

Form 966 Requirement

NOLs and Capital Losses