Exam 2: Corporate Formations and Capital Structure

Beth transfers an asset having an FMV of $200,000 and an adjusted basis of $150,000 to ABC Corporation in a Sec. 351 transaction. Beth receives in exchange ABC common stock having an FMV of $175,000 and Zeus Corporation common stock (a capital asset) having an FMV of $25,000 and a basis of $10,000 to ABC Corporation. ABC Corporation must recognize

What is the impact on a transferor if a Sec. 351 exchange involves the assumption of the shareholder's liabilities by the corporation?

S corporations are flow- through entities in which S income is allocated to shareholders.

Max transfers the following properties to a newly created corporation for $90,000 of stock and $10,0 in a transaction that qualifies under Sec. 351. Asset One Asset Two Asset Three FMV \ 30,000 \ 45,000 \ 25,000 Basis 35,000 40,000 20,000 Max's recognized gain is

Darnell, who is single, exchanges property having a $60,000 adjusted basis and a $50,000 FMV for 1,000 shares of Fox Corporation stock in a transaction qualifying under Sec. 351. The stock qualifies as Sec. 1244 stock. If Darnell sells his stock for $30,000, what is the amount and character of his recognized gain or loss?

Discuss the impact of the contribution of cash as part of a Sec. 351 exchange.

The City of Providence owns 100% of Triple A Baseball Corporation, a minor league baseball team in their community. The City donates land worth $125,000 to Triple A Corporation so the major league team will not revoke the City's minor league franchise. How much gross income must Triple A Corporation recognize because of the land contribution, and what is the land's basis to Triple A Corporation?

Phil and Nick form Philnick Corporation. Phil exchanges cash and other property for 900 shares (90% of the outstanding shares) of Philnick stock. Nick performs accounting services in exchange for 100 shares of Philnick stock worth $10,000. What are the tax consequences from forming the Philnick Corporation to Phil and Nick?

Which of the following statements about a partnership is true?

A sole proprietor is required to use the same reporting period for both business and individual tax information.

Chris transfers land with a basis of $40,000 to Webb Corporation in exchange for 100% of Webb's stock. At the date of the transfer, the land had a $30,000 fair market value. Chris makes an election to reduce his basis in Webb's stock to $30,000, so Webb's basis in the land is

Identify which of the following statements is true.

Carmen and Marc form Apple Corporation. Carmen transfers land that is Sec. 1231 property, with an adjusted basis of $18,000 and an FMV of $20,000 in exchange for one- half of the Apple Corporation stock. Marc transfers equipment that originally costs $28,000 on which he has taken $5,000 in depreciation deductions. The equipment has an FMV of $25,000 and he receives one- half of the stock and a $5,000 short- term note. The transaction meets the requirements of Sec. 351. Which statement below is correct?

On April 2 of the current year, Jana transfers land with a basis of $140,000 and a fair market value of $120,000 to Amish Corporation in exchange for all of its stock. She had originally acquired the land on December 1, 2002. What tax issues arise from the exchange?

Which of the following is an advantage of a sole proprietorship over other business forms?

The transferee corporation's basis in property received in a Sec. 351 exchange is

Joan transfers land (a capital asset) having a $20,000 adjusted basis to Jet Corporation in a transaction qualifying Sec. 351. In exchange, she received 50 shares of Jet Corporation common stock valued at $50,000, a $15,000 Jet Corporation bond due in 10 years, and a $10,000 Jet Corporation note due in 3 years. What tax issues should Joan consider with respect to the transfer? a) What is the amount of Joan's realized gain or loss? What is the amount of Joan's recognized gain or loss? Wh character of Joan's recognized gain or loss? b) What is Joan's basis in her stock? What is Joan's basis in the bond? What is Joan's basis in the note? c) What is Jet Corporation's basis in the land?

Matt and Sheila form Krupp Corporation. Matt contributes property with an FMV of $55,000 and a basis of $35,000. Sheila contributes property with an FMV of $75,000 and a basis of $40,000. Matt sells his stock to Paul shortly after the exchange. The transaction will

Maria has been operating a business as a sole proprietorship for several years. She needs additional capital and wants to incorporate her business. The assets of her business (building, land, inventory, and so on) have a $400,000 adjusted basis and a $1.5 million FMV. Maria is willing to exchange the assets for 1,500 shares of Metro Corporation stock, each having a $1,000 FMV. Bill and John are each willing to invest $500,000 in Maria's business and will each receive 500 shares of stock. Why is Sec. 351 important to Maria? Does it matter to Bill and John?

Jane and Joe plan to go into business together. They plan to incorporate the business. What tax issues should the consider when deciding whether or not to elect S corporation status? • Are their individual marginal tax rates lower or higher than a C corporation's marginal tax rates? • Do they anticipate profits or losses in the first few years of business? • Will the corporation generate any capital gains or losses? • Do they plan to withdraw money from the corporation? • Will they want or need fringe benefits? • Do they plan to use a calendar year end or a fiscal year end?