Question

QUESTION 21

1. Corporation Z distributes in kind its long held Apple stock with an adjusted basis of $480 and a fair market value of $200 to shareholder C. Corporation Z also distributes Apple stock with an adjusted basis of $120 at a fair market value of $200 to shareholder D.

   	a.	Corporation Z does not have loss on the distributions.
   	b.	The distributions to C will reduce E&P by $480 (but not create negative E&P).
   	c.	Corporation Z realizes gain of $80 on the distribution of the property and that amount less accrued income tax is added to E&P.
   	d.	All of the above.
   	e.	None of the above.

QUESTION 22

1. Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares of Z common stock bought in one transaction for $1,200. D owns 40 shares of Z common stock with a basis of $60 per share. The stock’s fair market value is $40 per share. Z’s E&P is $1,000. C sells 60 shares to Z for $1,800. The following statements are with regard to C.

   	a.	The redemption will be given dividend treatment.
   	b.	The redemption will be given sale treatment under 302(b)(3), complete termination of interest.
   	c.	It is impossible to tell whether the transaction will be given sale or dividend treatment.
   	d.	None of the above.

QUESTION 23

1. Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares of Z common stock bought in one transaction for $1,200. D owns 40 shares of Z common stock with a basis of $60 per share. The stock’s fair market value is $40 per share. Z’s E&P is $1,000.C sells 20 shares to Z for $800. The following statements are with regard to C.

   	a.	The redemption will be given dividend treatment.
   	b.	The redemption will be given sale or exchange treatment under 302(b)(2), substantially disproportionate disposition.
   	c.	It is impossible to tell whether the transaction will be given sale or dividend treatment.
   	d.	The redemption will most likely be treated as a sale under 302(b)(1), not essentially equivalent to a dividend, since the voting percentage has dropped to 50 percent in a two-person corporation and this is usually sufficient to meet the test.
   	e.	None of the above.

QUESTION 24

1. Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares of Z common stock bought in one transaction for $1,200. D owns 40 shares of Z common stock with a basis of $60 per share. The stock’s fair market value is $40 per share. Z’s E&P is $1,000. D sells 10 shares back to Z for $400. The following statements are with regard to D.

   	a.	The redemption will be treated as a dividend.
   	b.	The redemption will be treated as a sale under 302(b)(2), substantially disproportionate disposition.
   	c.	It is impossible to tell how the redemption will be treated.
   	d.	The redemption will likely be treated as a sale under 302(b)(1), not essentially equivalent to a dividend.
   	e.	None of the above.

QUESTION 25

1. Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares of Z common stock bought in one transaction for $1,200. D owns 40 shares of Z common stock with a basis of $60 per share. The stock’s fair market value is $40 per share. Z’s E&P is $1,000. C sells 60 shares to Z for $1,800. Additionally, C and D for this question are father and son.

   	a.	There will be attribution under Section 318, so that no matter how many shares C sells to Corporation Z, by attribution he will own 100% of the outstanding shares afterwards.
   	b.	There will be attribution under 318 if C's father is living since there is double attribution through C's father.
   	c.	There is no attribution.
   	d.	None of the above.

Answer 1