South Western Federal Taxation 2018 Corporations Partnerships Estates and Trusts 41st Edition – Test Bank

1. Similar to the like-kind exchange provision, § 351 can be partly justified under the wherewithal to pay concept.

  a.  True

  b.  False

ANSWER:   True

POINTS:   1

DIFFICULTY:   Easy

LEARNING OBJECTIVES:   CPET.SWFT.LO: 4-01 – LO: 4-01

NATIONAL STANDARDS:   United States – BUSPORG: Comprehension – BUSPORG: Comprehension

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Comprehension

OTHER:   Time: 2 min.

2. Similar to like-kind exchanges, the receipt of “boot” under § 351 can cause loss to be recognized.

  a.  True

  b.  False

ANSWER:   False

RATIONALE:   Realized gain, not loss, is recognized to the extent of the boot received.

POINTS:   1

DIFFICULTY:   Easy

LEARNING OBJECTIVES:   CPET.SWFT.LO: 4-01 – LO: 4-01

NATIONAL STANDARDS:   United States – BUSPORG: Comprehension – BUSPORG: Comprehension

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Knowledge

OTHER:   Time: 2 min.

3. Tina incorporates her sole proprietorship with assets having a fair market value of $100,000 and an adjusted basis of $110,000. Even though § 351 applies, Tina may recognize her realized loss of $10,000.

  a.  True

  b.  False

ANSWER:   False

RATIONALE:   Section 351 does not permit the recognition of realized losses.

POINTS:   1

DIFFICULTY:   Easy

LEARNING OBJECTIVES:   CPET.SWFT.LO: 4-01 – LO: 4-01

NATIONAL STANDARDS:   United States – BUSPORG: Comprehension – BUSPORG:Comprehension

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Application

OTHER:   Time: 2 min.

4. In a § 351 transfer, a shareholder receives boot of $10,000 but ends up with a realized loss of $3,000. Only $7,000 of the boot will be taxed to the shareholder.

  a.  True

  b.  False

ANSWER:   False

RATIONALE:   If a shareholder ends up with a realized loss, the receipt of the boot will not cause that loss to be recognized. The receipt of boot will only trigger a realized gain.

POINTS:   1

DIFFICULTY:   Easy

LEARNING OBJECTIVES:   CPET.SWFT.LO: 4-01 – LO: 4-01

NATIONAL STANDARDS:   United States – BUSPORG: Comprehension – BUSPORG: Comprehension

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Application

OTHER:   Time: 2 min.

5. A taxpayer may never recognize a loss on the transfer of property in a transaction subject to § 351.

  a.  True

  b.  False

ANSWER:   True

RATIONALE:   Losses may never be recognized on the exchange of property in a § 351 transaction.

POINTS:   1

DIFFICULTY:   Easy

LEARNING OBJECTIVES:   CPET.SWFT.LO: 4-01 – LO: 4-01

NATIONAL STANDARDS:   United States – BUSPORG: Comprehension – BUSPORG: Comprehension

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Comprehension

OTHER:   Time: 2 min.

6. If a transaction qualifies under § 351, any recognized gain is equal to the value of the boot received.

  a.  True

  b.  False

ANSWER:   False

RATIONALE:   Recognized gain cannot exceed the amount of gain realized.

POINTS:   1

DIFFICULTY:   Easy

LEARNING OBJECTIVES:   CPET.SWFT.LO: 4-01 – LO: 4-01

NATIONAL STANDARDS:   United States – BUSPORG: Comprehension – BUSPORG: Comprehension

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Comprehension

OTHER:   Time: 2 min.