Test 2 10 questions.

A tax advantage of an ESOP is non-recognition of gain treatment. What type of entity is eligible for non-recognition of gain treatment? Non-publicly traded C-Corp None of the above entities are eligible for non-recognition of gain treatment. S-Corp Both b and c are eligible Publicly traded C-Corp

Non-publicly traded C-Corp

Cash profit sharing plans and stock bonus plans have similarities and differences. Which of the following statements is/are true regarding these plans? Both plans allow participants to vote their shares held by the plan. Both plans can hold employer stock. 1 only Both 1 and 2 Neither 1 nor 2

2 only

Which of the following is/are false about ESOPs? An ESOP is controlled through a trust. ESOPs provide corporate owners with a way to transfer ownership interests to their employees. The trust of an ESOP is prohibited from borrowing money from a bank to purchase the employer stock. 1 and 2 2 and 3 3 only None of the above

3 only

Using the same information as in #8, except that Barb, Inc. is an S-Corp. Which of the following is true? He will have a capital gain of $6.8 million this year (year of the sale) for tax purposes. Steve will not have a capital gain this year (year of sale) for tax purposes. He will have a capital gain of $5.0 million this year (year of the sale) for tax purposes.

He will have a capital gain of $6.8 million this year (year of the sale) for tax purposes

Which of the following statements is true regarding diversification requirements for participants in an ESOP? Participants must be at least 55 years old. None of the above are true. Up to 75% of a participant's ESOP balance can be diversified in the final year. Participants must have been in the plan for more than 15 years.

Participant must be at least 55 years old.

Which of the following statements about stock bonus plans is false? Participants of a stock bonus plan must have the right to demand employer securities on plan distributions. Participants of Stock Bonus Plans always have the right to demand a distribution of cash instead of shares. Stock bonus plans have an employer deductible contribution limit of 25 percent of covered compensation. A CODA can be attached to a stock bonus plan.

Participants of Stock Bonus Plans always have the right to demand a distribution of cash instead of shares.

The tax-exempt status of the ESOP Trust provides a significant tax benefit for which of the following entity types? Both b and c are eligible None of the above entities are eligible for non-recognition of gain treatment. Publicly traded C-Corp Non-publicly traded C-Corp S-Corp

S-Corp

Steve is the sole owner of Barb, Inc. (a C-Corp) and has grown the business over the last 15 years. He decides to sell 40% of his non-publicly-traded corporate stock on July 1 of this year to an ESOP for $8 million. His adjusted basis for his entire (100%) stock position was $3 million. On February 4th, the year following the sale, Steve uses all $8 million to buy shares of Apple Stock. Which of the following statements is true? Steve will not have a capital gain this year (year of the sale) for tax purposes. He will have a capital gain of $6.8 million this year (year of the sale) for tax purposes. He will have a capital gain of $5.0 million this year (year of the sale) for tax purposes.

Steve will not have a capital gain this year (year of the sale) for tax purposes.

Which of the following statements is false regarding stock bonus plans? Stock bonus plans are generally as cost efficient to operate as cash profit-sharing plans. Stock bonus plans typically result in a concentrated portfolio for the employee. Stock bonus plans allow for the current deductibility of non-cash contributions. The required repurchase (put) option for a stock bonus plan can create potential cash flow issues for the employer in the future.

Stock bonus plans are generally as cost efficient to operate as cash profit-sharing plans.

Jocko works for IBM, a publicly traded company that sponsors a stock bonus plan. Which of the following statements is true regarding the plan? If Jocko has less than three years, he is permitted to diversify one-half of company match contributions that consist of IBM stock. Upon termination, Jocko must be given the right to receive IBM stock held in the plan as part of a distribution. Jocko can demand that his employer repurchase his shares so that he receives his distribution in cash. Jocko cannot vote the shares of IBM within his account.

Upon termination, Jocko must be given the right to receive IBM stock held in the plan as part of a distribution.