ACC, 4302 Exam # 2 Spring 20IN Chapters 6, Date Name True/Pahe (10 Points l. Puf

Question

ACC, 4302 Exam # 2 Spring 20IN Chapters 6, Date Name True/Pahe (10 Points l. Puftia Corporation's 2,000 shares outstanding are owned as follows: Paul, 800 shares Sandra (Paul's sister), 800 shares; and Greta (Paul's granddaughter), 400 shares. During the current year, Puftin (&Pofst; million) redeemed 600 shares of Paul's stock for $100,000 Ir Paul had aequired the 600 shares five years ago for $30,000, he will have a long-term capital gain of870,000 from the redemption 2. Betty's adjusted gross estate is $9 million. The death taxes and funeral and administration expenses of her estate total $1.2 miltion, Included in Betty's gross estate is stoek in Heron Corporation, valued at 83.3 million as of the date of her death. Betty had acquired the stock six years ago at a cost of S810,000. If Heron Corporation redeems $1.2 million of Heron stock from the estate, the transaction will qualify under § 303 as a redemption to pay death taxes and receive sale or exchange treatment. 3. The W-2 wages limitation as to the DPAD encourages the use of independent contractors 4. AMTI may be defined as regular taxable income after AMT adjustments (other than the NOL. and ACE adjustments) and after tax preferences 5. The basis for the acquiring corporation in the target's assets is increased by any gain recognized by the target Multiple Choice (10 Points) 6. A shareholder bought 10,000 shares of Coral Corporation for $50,000 several years ago When the stock is valued at $90,000, Coral redeems the shares in exchange for 5,000 shares of Blush Corporation stock and a $10,000 Blush bond. This transaction meets the requirements of § 368, which of the following statements isfalse with regard to this transaction? a. The shareholder has a realized gain of $40,000. b. The shareholder has a postponed gain of $30,000 c. The shareholder has a basis in the Blush stock of $60,000. d. The shareholder has a recognized gain of $10,000. e. All of the above statements are true. Page

Explanation / Answer

Answer

1. True

Explanation:

Under the family attribution rules, Paul is deemed to own the shares owned by his granddaughter, Greta, but not his sister, Sandra. Before the redemption, Paul therefore owns 60% of the Puffin shares outstanding [(800 shares directly plus 400 shares indirectly from Greta) ÷ 2,000 shares]. After the redemption, Paul owns 42.9% of the remaining outstanding shares of Puffin Corporation [(200 shares directly plus 400 shares indirectly from Greta) ÷ 1,400 shares). Since this ownership interest is less than 80% of Paul's pre redemption interest [42.9% < 48% (80% × 60%)] and less than 50% of the total voting power after the redemption, the transaction qualifies as a disproportionate redemption. Thus, Paul has a $70,000 long- term capital gain from the redemption ($100,000 amount realized - $30,000 stock basis).

2. True
Explanation:

The value of the Heron Corporation stock in Betty's gross estate exceeds 35% of the value of the adjusted gross estate ($3.3 million ÷ $9 million = 36.7%); thus, the transaction qualifies under § 303 for sale or exchange treatmen

3.False

Beacuse,The opposite is the case

4.False

Preferential deductions are added back into the taxpayer's income to calculate his or her alternative minimum taxable income (AMTI), then the AMT exemption is subtracted to determine the final taxable figure.

5.True

assets is increased by any gain recognized by the target.

6.C. The shareholder has a basis in the Blush stock of $60,000

The shareholder’s basis in the Blush stock is $50,000 [$80,000 FMV of stock received($90,000 value of Coral – $10,000 bond received) – $30,000 postponed gain]

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