Exam 9: Tax-Deferred Exchanges

Four shareholders form a new corporation in exchange for stock with a fair market value of $1,000 per share.Benjamin transfers investment land (current fair market value of $35,000) that he purchased 10 year ago for $15,000.In exchange, Benjamin receives 30 shares of stock and $5,000 cash.Andrew transfers a machine with a basis of $45,000 and a fair market value of $35,000.Andrew receives 30 shares of stock and $5,000 cash.Emily transfers a rental office building (current fair market value of $45,000) that she purchased 20 years ago for $60,000.Its current basis is $15,000 after recognition of $45,000 in depreciation expense.The corporation assumes the $20,000 balance on the original mortgage and Emily receives 25 shares of stock from the corporation in the exchange.Jackson provided the legal services to organize the corporation (value $5,000) and contributes $10,000 in cash in exchange for 15 shares of stock.What is Emily's basis in the stock she received?

For a nonsimultaneous exchange to qualify for like-kind provisions, the taxpayer must identify the property to be acquired within 90 days and actually close the transactions within 180 days.

Dylan, Luke, and Hannah form a partnership.Dylan contributes land with a fair market value of $25,000 (basis of $15,000) in exchange for a 25% interest.Luke contributes equipment with a $35,000 fair market value (basis of $38,000) in exchange for a 35% interest, and Hannah contributes a building with a $100,000 fair market value (basis = $35,000) and a mortgage of $60,000 (assumed by the partnership) in exchange for a 40% interest.How much gain does Hannah recognize?

Which of the following is not a required characteristic of a qualifying Section 351 transaction?

Simon purchased 1,000 shares of ABC stock for $8,000 on April 4.On March 1 he had sold 1,500 shares of ABC stock for $9,000 that he had purchased three months earlier for $15,000.What is Simon's realized and recognized loss, respectively, on the March 1 stock sale?

James corporation exchanges a building (fair market value = $800,000, adjusted basis = $600,000) that has a $100,000 mortgage for another building owned by Pete Corporation (fair market value = $1,100,000, adjusted basis = $600,000) that is encumbered by a $400,000 mortgage.Each party assumes the mortgage on the building received.What are James's and Pete's realized gains on this exchange, respectively?

Lucas transfers investment land to a corporation as part of a Section 351 transaction.The land has a fair market value of $75,000, an adjusted basis of $30,000, and is encumbered by a mortgage (from its original purchase five years ago by Lucas) of $40,000 that the corporation assumes.In exchange for the land, the corporation issues stock to Lucas worth $35,000.How much gain does Lucas recognize, what is Lucas's stock basis, and what is the basis of the land to the corporation, respectively?

Four shareholders form a new corporation in exchange for stock with a fair market value of $1,000 per share.Benjamin transfers investment land (current fair market value of $35,000) that he purchased 10 year ago for $15,000.In exchange, Benjamin receives 30 shares of stock and $5,000 cash.Andrew transfers a machine with a basis of $45,000 and a fair market value of $35,000.Andrew receives 30 shares of stock and $5,000 cash.Emily transfers a rental office building (current fair market value of $45,000) that she purchased 20 years ago for $60,000.Its current basis is $15,000 after recognition of $45,000 in depreciation expense.The corporation assumes the $20,000 balance on the original mortgage and Emily receives 25 shares of stock from the corporation in the exchange.Jackson provided the legal services to organize the corporation (value $5,000) and contributes $10,000 in cash in exchange for 15 shares of stock.What is Andrew's basis for the stock he receives?

Which type of reorganization is a recapitalization?

Wally's investment real estate was condemned on November 14, 2019.On February 14, 2020, he received $250,000 for the property that had a basis of $210,000.What is the last date that Wally can acquire replacement property to avoid gain recognition?

Internal Revenue Code Section 351, relating to transfers to a controlled corporation, can apply to transfers to both a new and an existing corporation.

The holding period for property received in a qualifying like-kind exchange begins on the date the new property is received.

Which type of reorganization does not allow the parent corporation to make a qualifying transfer to a subsidiary of the property received in the reorganization?

Which type of reorganization does not entail a transfer of assets for stock?

In a qualified reorganization:

As part of a divorce decree, Janet must give her ex-spouse Herman her half-interest in stock with a total value of $120,000 (total basis = $70,000) in exchange for his half-interest in their home with a total value of $150,000 and a basis of $130,000.What are Janet and Herman's realized and recognized gains or losses on this exchange? Janet: Realized Recognized Herman: Realized Recognized

Which of the following characteristics is the same for transfers of property to both a corporation and to a partnership in exchange solely for an ownership interest?

The taxpayer-use test for qualifying replacement property

Corporation P acquires 95 percent of Corporation T's assets for $19.5 million of P's stock in a qualifying reorganization.The assets transferred have a basis of $14 million.T retained $500,000 of cash to pay its remaining liabilities.It only used $200,000 of the cash and the remaining cash and P stock are distributed to T's shareholder, who has a basis of $14 million in her stock.What is the gain recognized on this reorganization?

Trudo Corporation has a building that it needs to sell or exchange because of growth in its business.If Trudo sells the building, it will have a gain of $450,000.What is the amount of taxes that Trudi will avoid paying if it can exchange the building? The corporation has $1,000,000 of taxable income from operations for the current year.