Question

If a transfer of property or cash in exchange for corporate stock does not meet the requirements of Section 351, the taxpayer must _________ any gain on the transfer.

Answer 1

The statement is false because the tax consequences for corporate and noncorporate shareholders in a complete liquidation can differ, with corporate shareholders possibly experiencing double taxation while noncorporate shareholders generally do not.

Step-by-step explanation:

The tax consequences to a shareholder in a complete liquidation can be different for corporate and noncorporate shareholders. For noncorporate shareholders, the tax consequences typically involve the recognition of capital gain or loss on the difference between the liquidation proceeds and the shareholder's basis in the stock. Corporate shareholders, on the other hand, may be subject to additional taxes such as the corporate-level tax under certain conditions.

Therefore, the statement that 'The tax consequences to a shareholder in a complete liquidation are the same for both corporate and noncorporate shareholders' is false. Corporate shareholders may face double taxation where the corporation pays taxes on its gains from liquidation, and then shareholders pay taxes on the distributions they receive. In contrast, noncorporate shareholders typically only face tax at the individual level.Shareholder liability is generally limited to the amount they have invested in the corporation, and this principle applies in both liquidation scenarios and regular business operations.