Exam 2: Corporate Formations and Capital Structure

On May 1 of the current year, Kiara, Victor, Pam, and Joe form Newco Corporation with the following investme Property Transferred Number of common Transferor Asset Basis to Transferor FMV shares issued Kiara Land \ 12,000 \ 30,000 Building 38,000 70,000 400 Mortgage and the land \& building 60,000 60,000 Victor Equipment 25,000 40,000 300 Pam Van 15,000 10,000 50 Joe Accounting Services 0 10,000 100 Kiara purchased the land and building several years ago for $12,000 and $50,000, respectively. Kiara has claimed straight- line depreciation on the building. Victor also received a Newco Corporation note for $10,000 due in thre The note bears interest at a rate acceptable to the IRS. Victor purchased the equipment three years ago for $50,00 also receives $5,000 cash. Pam purchased the van two years ago for $20,000. a) Does the transaction satisfy the requirements of Sec. 351? b) What are the amounts and character of the reorganized gains or losses to Kiara, Victor, Pam, Joe, and Newco Corporation? c) What is each shareholder's basis for his or her Newco stock? When does the holding period for the stock beg d) What is Newco Corporation's basis for its property and services? When does its holding period begin for eac property?

Nathan is single and owns a 54% interest in the new NT Partnership, a calendar- year entity. The NT Partnership reports $100,000 of profits for its first year. Assuming Nathan is taxed at a 35% marginal tax rate on the additional income, how much tax does Nathan owe if the NT Partnership does not distribute any of its profits to him?

A medical doctor incorporates her medical practice, which is operated as a sole proprietorship. The proprietorship uses the cash method of accounting. Among the assets contributed to the new corporation are unrealized receivables worth $40,000. The receivables are collected by the corporation. Which of the following statements is correct?

The transferor's holding period for any stock received in exchange for a capital asset

Under Sec. 351, corporate stock may include all of the following except

Lynn transfers property with a $56,000 adjusted basis and a $100,000 FMV to Florida Corporation for 75 shares o Florida stock. Fred, Lynn's father, transfers property with a $64,000 adjusted basis and a $100,000 FMV to Florida Corporation for the remaining 25 shares of Florida stock. a) What is the amount of each transferor's gain or loss? b) What is Lynn's basis for her Florida stock? c) What is Fred's basis for his Florida stock?

Business assets of a sole proprietorship are owned by

Mario and Lupita form a corporation in a transaction coming under Sec. 351. Lupita transfers property with an adjusted basis of $150,000 and an FMV of $200,000 in exchange for one- half of the stock. The property has an $80,000 mortgage, which the corporation assumes. The corporation's basis in the property is

The City of Seattle gives Dotcom Corporation $120,000 cash and land worth $200,000 to induce it to relocate to Seattle. Dotcom Corporation did not spend the cash during the 12 months following the contribution. What are the tax consequences to Dotcom Corporation with respect to the contribution?

Nikki exchanges property having a $20,000 adjusted basis and a $16,000 FMV for 100 shares of Niftik stock in a transaction qualifying under Sec. 351. The stock qualifies as Sec. 1244 stock. Nikki's basis in her Niftik stock is $20,000. If Nikki sells her stock for $5,000, what is the amount and character of her loss?

The City of Portland gives Data Corporation $60,000 cash and land worth $100,000 to induce it to move. The cash was not spent during the 12 months following contribution. The contribution results in

Jeremy transfers Sec. 351 property acquired three years earlier having a $100,000 basis and a $160,000 FMV to Jeneva Corporation. Jeremy receives all 200 shares of Jeneva stock having a $140,000 FMV, and a $20,000 90- day Jeneva note. What is Jeremy's recognized gain?

Henry transfers property with an adjusted basis of $95,000 and an FMV of $100,000 to a newly formed corporation in a Sec. 351 exchange. Henry receives stock with an FMV of $85,000 and a short- term note with a $15,000 FMV. Henry's basis in the stock is

Identify which of the following statements is true.

Bread Corporation is a C corporation with earnings of $100,000. It paid $20,000 in dividends to its sole shareholder, Gerald. Gerald also owns 100% of Butter Corporation, an S corporation. Butter had net taxable income of $80,000 and made a $15,000 distribution to Gerald. What income will Gerald report from Bread and Butter's activities?

Identify which of the following statements is false.

Why would a transferor want to avoid the nonrecognition of gain under Sec. 351? How can the nonrecognition provision of Sec. 351 be avoided?

Identify which of the following statements is true.

The City of Springfield donates land worth $250,000 to Deuce Corporation to induce it to locate in Springfield and provide 1,000 jobs for its citizens. How much gross income must Deuce Corporation recognize because of the land contribution, and what is the land's basis to Deuce Corporation?

What is the tax treatment for a contribution of capital to a corporation by a nonshareholder who is not a customer, potential customer, government entity, or civic group?