Page 1 of 408
WITH PRACTICE TEST ALL 500 QUESTIONS AND
DETAILED SOLUTIONS LATEST UPDATE
WGU C239 EXAM OA
What happens if a shareholder receives "boot" in a Section 351 transaction?
A. All gain is recognized, regardless of the amount of boot
B. Gain is recognized to the extent of the boot received or the realized gain, whichever is
lesser
C. No gain or loss is recognized, even with the receipt of boot
D. Losses are recognized in proportion to the boot
B. Gain is recognized to the extent of the boot received or the realized gain, whichever is lesser
How does the tax treatment of C corporation losses differ from other entities? A.
Losses are passed through to shareholders.
B. Losses can offset shareholders' personal income.
C. Losses are carried forward or back by the corporation.
D. Losses are deductible only in the year incurred.
C. C corporation losses are retained at the entity level and can be carried forward or back to
offset taxable income in other years.
What is the purpose of the dividends-received deduction for corporations?
A. To encourage corporations to distribute more dividends
B. To reduce the corporate income tax rate
C. To mitigate multiple taxation of corporate income
D. To prevent double taxation of S corporation income
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C. The dividends-received deduction is designed to reduce the burden of multiple
levels of taxation on corporate earnings.
*only available to C corps
Under Section 357, when are liabilities treated as boot in a Section 351 transaction?
A. When liabilities assumed exceed the fair market value of property transferred
B. When the principal purpose of the liability assumption is tax avoidance
C. When liabilities assumed exceed the shareholder's adjusted basis in the property
transferred
D. When liabilities are assumed for no bona fide business purpose
B. Section 357(b) states that liabilities assumed in a Section 351 transaction are treated as boot
if the primary purpose of the liability assumption is tax avoidance or if there is no bona fide
business purpose.
What is the default tax classification of an unincorporated entity with only one owner under
the
"check-the-box" regulations?
A. Partnership
B. Disregarded entity
C. C corporation
D. S corporation
B. Disregarded entity
Which type of income is taxed at preferential rates under current tax law to mitigate the
effects of double taxation? A. Ordinary income
B. Qualified dividend income
C. Short-term capital gains
2
,Page 3 of 408
D. Partnership income
B. .Qualified dividend income is taxed at preferential rates of 0%, 15%, or 20% to reduce the
burden of double taxation on shareholders
Which of the following is not considered "property" under Section 351 for a nonrecognition
transaction? A. Patents
B. Services
C. Equipment
D. Installment notes
B. Services are excluded from the definition of property under Section 351. Stock received in
exchange for services is taxable as ordinary income.
*Patents, equipment, cash, and installment notes are all considered property for purposes
of Section 351.
How is a shareholder's stock basis determined in a Section 351 transaction?
A. Fair market value of stock received
B. Adjusted basis of the property transferred, plus any gain recognized, minus boot received
C. Total liabilities assumed by the corporation
D. Total fair market value of all property transferred
B. Adjusted basis of the property transferred, plus any gain recognized, minus boot received
What is the consequence of transferring services and nominal property in a Section 351
transaction?
A. The transaction automatically qualifies for nonrecognition treatment
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, Page 4 of 408
B. The transferor recognizes ordinary income on the value of services provided
C. Section 351 treatment is lost for all transferors
D. The transferor recognizes gain on the nominal property transferred
B. The value of stock received for services is treated as ordinary income,
while the nominal property may not satisfy Section 351 requirements if its value is minimal
relative to services and needs to be at least 10% of the value of services to qualify.
How is "control" defined for Section 351 purposes?
A. Ownership of 100% of the corporation's stock
B. Ownership of 50% or more of the voting stock
C. Ownership of at least 80% of the voting stock and all other stock classes
D. Ownership of at least 90% of the corporation's equity
C. Ownership of at least 80% of the voting stock and all other stock classes
*Treated as a sale or exchange and gain or loss is recognized if the control requirement isn't met
What is the tax treatment for liabilities exceeding the adjusted basis of property transferred
in a
Section 351 transaction under Section 357(c)? A.
The liabilities are ignored.
B. The transferor recognizes gain equal to the excess liability.
C. The liabilities are treated as a contribution to capital.
D. The liabilities reduce the shareholder's basis in the stock received.
B. Section 357(c) requires that gain be recognized if liabilities transferred exceed the adjusted
basis of the contributed property, ensuring no negative basis results.
What is the primary reason Congress allows nonrecognition treatment under Section 351?
4
WITH PRACTICE TEST ALL 500 QUESTIONS AND
DETAILED SOLUTIONS LATEST UPDATE
WGU C239 EXAM OA
What happens if a shareholder receives "boot" in a Section 351 transaction?
A. All gain is recognized, regardless of the amount of boot
B. Gain is recognized to the extent of the boot received or the realized gain, whichever is
lesser
C. No gain or loss is recognized, even with the receipt of boot
D. Losses are recognized in proportion to the boot
B. Gain is recognized to the extent of the boot received or the realized gain, whichever is lesser
How does the tax treatment of C corporation losses differ from other entities? A.
Losses are passed through to shareholders.
B. Losses can offset shareholders' personal income.
C. Losses are carried forward or back by the corporation.
D. Losses are deductible only in the year incurred.
C. C corporation losses are retained at the entity level and can be carried forward or back to
offset taxable income in other years.
What is the purpose of the dividends-received deduction for corporations?
A. To encourage corporations to distribute more dividends
B. To reduce the corporate income tax rate
C. To mitigate multiple taxation of corporate income
D. To prevent double taxation of S corporation income
1
,Page 2 of 408
C. The dividends-received deduction is designed to reduce the burden of multiple
levels of taxation on corporate earnings.
*only available to C corps
Under Section 357, when are liabilities treated as boot in a Section 351 transaction?
A. When liabilities assumed exceed the fair market value of property transferred
B. When the principal purpose of the liability assumption is tax avoidance
C. When liabilities assumed exceed the shareholder's adjusted basis in the property
transferred
D. When liabilities are assumed for no bona fide business purpose
B. Section 357(b) states that liabilities assumed in a Section 351 transaction are treated as boot
if the primary purpose of the liability assumption is tax avoidance or if there is no bona fide
business purpose.
What is the default tax classification of an unincorporated entity with only one owner under
the
"check-the-box" regulations?
A. Partnership
B. Disregarded entity
C. C corporation
D. S corporation
B. Disregarded entity
Which type of income is taxed at preferential rates under current tax law to mitigate the
effects of double taxation? A. Ordinary income
B. Qualified dividend income
C. Short-term capital gains
2
,Page 3 of 408
D. Partnership income
B. .Qualified dividend income is taxed at preferential rates of 0%, 15%, or 20% to reduce the
burden of double taxation on shareholders
Which of the following is not considered "property" under Section 351 for a nonrecognition
transaction? A. Patents
B. Services
C. Equipment
D. Installment notes
B. Services are excluded from the definition of property under Section 351. Stock received in
exchange for services is taxable as ordinary income.
*Patents, equipment, cash, and installment notes are all considered property for purposes
of Section 351.
How is a shareholder's stock basis determined in a Section 351 transaction?
A. Fair market value of stock received
B. Adjusted basis of the property transferred, plus any gain recognized, minus boot received
C. Total liabilities assumed by the corporation
D. Total fair market value of all property transferred
B. Adjusted basis of the property transferred, plus any gain recognized, minus boot received
What is the consequence of transferring services and nominal property in a Section 351
transaction?
A. The transaction automatically qualifies for nonrecognition treatment
3
, Page 4 of 408
B. The transferor recognizes ordinary income on the value of services provided
C. Section 351 treatment is lost for all transferors
D. The transferor recognizes gain on the nominal property transferred
B. The value of stock received for services is treated as ordinary income,
while the nominal property may not satisfy Section 351 requirements if its value is minimal
relative to services and needs to be at least 10% of the value of services to qualify.
How is "control" defined for Section 351 purposes?
A. Ownership of 100% of the corporation's stock
B. Ownership of 50% or more of the voting stock
C. Ownership of at least 80% of the voting stock and all other stock classes
D. Ownership of at least 90% of the corporation's equity
C. Ownership of at least 80% of the voting stock and all other stock classes
*Treated as a sale or exchange and gain or loss is recognized if the control requirement isn't met
What is the tax treatment for liabilities exceeding the adjusted basis of property transferred
in a
Section 351 transaction under Section 357(c)? A.
The liabilities are ignored.
B. The transferor recognizes gain equal to the excess liability.
C. The liabilities are treated as a contribution to capital.
D. The liabilities reduce the shareholder's basis in the stock received.
B. Section 357(c) requires that gain be recognized if liabilities transferred exceed the adjusted
basis of the contributed property, ensuring no negative basis results.
What is the primary reason Congress allows nonrecognition treatment under Section 351?
4
