6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 66 Pursuant to a qualifying stock redemption, Redbird Corporation (E & P of $400,000) transfers land held for investment purposes to Bob, a 10% shareholder. On the date of the distribution, Redbird has a basis of $200,000 in the land and its fair market value is $150,000. Bob has a basis of $40,000 in the shares redeemed. With respect to the redemption:

551. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 66
Pursuant to a qualifying stock redemption, Redbird Corporation (E & P of
$400,000) transfers land held for investment purposes to Bob, a 10%
shareholder. On the date of the distribution, Redbird has a basis of $200,000
in the land and its fair market value is $150,000. Bob has a basis of $40,000
in the shares redeemed. With respect to the redemption:

a.
Bob will recognize a gain of $110,000.
b. Bob will have $150,000 of dividend
income.
c. Bob will have a $200,000 basis in the
land.
d. Redbird Corporation will recognize a
capital loss of $50,000.
e. None of the above.

552. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 67
Canary Corporation has 1,000 shares of stock outstanding. It redeems in a
qualifying stock redemption 350 shares for $400,000 at a time when it has
paid-in capital of $100,000 and E & P of $1 million. What would be the
charge to Canary’s E & P as a result of the redemption?

a.
$400,000.
b. $350,000.
c. $140,000.
d. $40,000.
e. None of the above.

553. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 68
In the current year, Loon Corporation made a distribution in redemption of some
of its shares. Loon incurred expenditures in connection with the redemption
totaling $35,000 (accounting fees of $9,000, legal fees of $20,000, and
brokerage fees of $6,000). The distribution was a qualifying stock redemption.
How much of the $35,000 is deductible in the current year?

a.
$6,000.
b. $9,000.
c. $29,000.
d. $35,000.
e. None of the above.

554. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 69
Which of the following is an incorrect
statement regarding the tax consequences of a § 306 stock sale?

a.
No loss is recognized on the sale.
b. The shareholder generally recognizes
ordinary income equal to the fair market value of the preferred stock on the
date of the stock dividend.
c. The issuing corporation reduces its E
& P by the amount of sales proceeds.
d. Any ordinary income recognized by the
shareholder qualifies for the 15% (or 0%) maximum tax rate that applies to
dividend income.
e. None of the above.

555. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 70
Connie sold 200 shares of § 306 stock (basis of $10,000) in Blackbird
Corporation to Larry (an unrelated individual) for $30,000. When the § 306
stock was issued to Connie, the stock had a value of $30,000, and Blackbird had
E & P of $500,000. At the time the § 306 stock is sold, Blackbird’s E &
P is $550,000. At the time of the sale, Connie owned 750 shares of common stock
(basis of $65,000) in Blackbird. With respect to the sale of the § 306 stock by
Connie:

a.
Connie has a $30,000 capital gain.
b. Blackbird Corporation reduces its E
& P by $30,000.
c. Connie has a $20,000 capital gain.
d. Connie has a $75,000 basis in the
common stock.
e. None of the above.

556. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 71
Two years ago, Emily, the sole shareholder of Tan Corporation (E & P of
$600,000), received a nontaxable stock dividend of 100 shares of preferred
stock (fair market value of $100,000) from Tan. As a result of the stock
dividend, Emily properly allocated $30,000 of her common stock basis to the
preferred stock. One year ago, Emily made a gift of the preferred stock in Tan
Corporation to her son, Matt. In the current year, Matt sells one-half of the
shares of preferred stock to Betty, an unrelated party, for $50,000. With
respect to the sale of the preferred stock by Matt:

a.
Matt will recognize ordinary income of $0.
b. Matt will recognize ordinary income
of $35,000.
c. Matt will recognize ordinary income
of $50,000.
d. Matt will recognize a capital gain of
$35,000.
e. None of the above.

557. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 72
Joe owns 100% of Green Corporation (E & P of $500,000) and 100% of Navy
Corporation (E & P of $400,000). Joe sells 100 shares in Green (basis of
$40,000) to Navy for $70,000, its fair market value. Joe purchased the stock in
Green six years ago. Joe has:

a.
Dividend income of $30,000.
b. Dividend income of $70,000.
c. A long-term capital gain of $30,000.
d. A long-term capital gain of $70,000.
e. None of the above.

558. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 73
In comparing a qualifying stock redemption with a complete liquidation, which
of the following statements is incorrect?

a.
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.
b. The basis of property acquired is its
fair market value on the date of distribution for both a qualifying stock
redemption and a liquidation.
c. Both a qualifying stock redemption
and a complete liquidation produce sale or exchange treatment to the
shareholder.
d. 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 qualifying stock
redemption.
e. Section 267 disallows recognition of
losses between related parties in a qualifying stock redemption but not in a
complete liquidation.

559. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 74
Pursuant to a complete liquidation, Woodpecker Corporation distributes the
following assets to its unrelated shareholders: land held for six years as an
investment (basis of $100,000, fair market value of $300,000), inventory (basis
of $100,000, fair market value of $140,000), and marketable securities held for
two years as an investment (basis of $200,000, fair market value of $120,000).
What are the tax results to Woodpecker Corporation as a result of the
liquidation?

a.
Woodpecker Corporation would recognize ordinary income of $40,000 and a net
capital gain of $200,000.
b. Woodpecker Corporation would
recognize ordinary income of $40,000 and a net capital gain of $120,000.
c. Woodpecker Corporation would
recognize ordinary income of $40,000 and a net capital loss of $80,000.
d. Woodpecker Corporation would
recognize no gain or loss on the liquidation.
e. None of the above.

560. CHAPTER
6—CORPORATIONS: REDEMPTIONS AND LIQUIDATIONS Question 75
Pursuant to a complete liquidation, Oriole Corporation distributes to its
shareholders land with a basis of $450,000 and a fair market value of $550,000.
The land is subject to a liability of $600,000. What is Oriole’s recognized
gain or loss on the distribution?

a.
$0.
b. $100,000 gain.
c. $150,000 gain.
d. $50,000 loss.
e. None of the above.