Which of the Following Statements Best Describes the Tax Results

question 8

Multiple Choice

Which of the following statements best describes the tax results to a shareholder in a section 351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

• A) Liabilities assumed by a corporation on a section 351 transfer are treated as boot if there is no business purpose for the assumption of the liabilities by the corporation.
• B) Liabilities assumed by a corporation on a section 351 transfer are never treated as boot.
• C) Liabilities assumed by a corporation on a section 351 transfer are treated as boot if the total liabilities assumed exceed the total basis of the assets transferred.
• D) Liabilities assumed by a corporation on a section 351 transfer are always treated as boot.

---

Definitions:

Note Receivable

A financial asset representing a promise to receive a specific amount of money, sometimes with interest, from another party on a future date.

Dishonored

A term used to describe a cheque or negotiable instrument that a bank refuses to pay or accept due to insufficient funds or other reasons.

Accounting Equation

A fundamental principle in finance that states assets equal liabilities plus equity.

Note Settlement

The process of fulfilling the obligations of a promissory note, typically involving the payment of the principal and accrued interest.