Question

Which of the following statements is false?

a. In a corporate liquidation, a corporation can potentially recognize gain or loss on its distribution of assets to its shareholders.

b. The accumulated earnings tax can potentially apply to a corporation with $75,000 of assets if they have no business reason to retain the $75,000 of assets.

c. The personal holding tax can apply if (1) more than 50% of the value of the outstanding stock was owned by five or fewer individuals at any time during the last half of the year and (2) 60% or more of the corporation’s income is comprised of passive types of income.

d. Marcus transfer a car with an adjusted tax basis to Marcus of 120,000 and a fair market value of $300,000 to Hecka Corporation and in return Marcus receives (1) 90% of the stock of Hecka Corporation worth $260,000 and (2) Marcus also receives $40,000 of cash from Hecka. As a result of this transaction, Marcus recognized a gain of $40,000.

e. None of the statements above are false

Answer 1

Option (d) is correct.

Cost of car to Marcus = $120,000

Marcus received stock worth $260,000 plus $40,000 cash

Total consideration = $300,000

Recognized gain = Total consideration - Cost of car = $300,000 - $120,000 = $180,000

Hence, the statement, "Marcus transfer a car with an adjusted tax basis to Marcus of 120,000 and a fair market value of $300,000 to Hecka Corporation and in return Marcus receives (1) 90% of the stock of Hecka Corporation worth $260,000 and (2) Marcus also receives $40,000 of cash from Hecka. As a result of this transaction, Marcus recognized a gain of $40,000." is false.

All other three statements are true.

Answer is d. Marcus transfer a car with an adjusted tax basis to Marcus of 120,000 and a fair market value of $300,000 to Hecka Corporation and in return Marcus receives (1) 90% of the stock of Hecka Corporation worth $260,000 and (2) Marcus also receives $40,000 of cash from Hecka. As a result of this transaction, Marcus recognized a gain of $40,000.