Question 1

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

Accepted Answer

A transferor may want the corporation to

Question 2

Dan transfers property with an adjusted basis of $50,000 and an FMV of $100,000 to a newly formed Sun Corporation in exchange for 500 shares of Sun stock, which is one- half of the outstanding Sun stock. His daughter, Sylvia, transfers property with an adjusted basis of $25,000 and an FMV of $50,000 for the other 500 shares at the same time. What are the tax consequences of the two transfers, assuming all the requirements of Sec. 351 are met?

Accepted Answer

No gain or loss is recognized by either

Question 3

Nonresident aliens are not allowed to claim the standard deduction.

Accepted Answer

A) True 
 B)False

Question 4

Any losses on the sale of Section 1244 stock are ordinary.

Accepted Answer

A) True 
 B)False

Question 5

Identify which of the following statements is true.

Accepted Answer

A)  If a C corporation does not distribute its income to its shareholders annually, double taxation cannot occur. 
B)  C corporation operating losses are deductible by the individual shareholders. 
C)  Capital losses incurred by a C corporation can be used to offset the corporation's ordinary income. 
D)  All of the above are false. 
A)  If a C corporation does not distribute its income to its shareholders annually, double taxation cannot occur. 
B)  C corporation operating losses are deductible by the individual shareholders. 
C)  Capital losses incurred by a C corporation can be used to offset the corporation's ordinary income. 
D)  All of the above are false.

Question 6

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?

Accepted Answer

A)  Carmen recognizes a $2,000 Sec. 1231 gain and Marc recognizes $5,000 as ordinary income. 
B)  Carmen recognizes a $2,000 Sec. 1231 gain and Marc recognizes a $5,000 Sec. 1231 gain. 
C)  There is no recognized gain or loss. 
D)  Carmen recognizes no gain and Marc recognizes $2,000 as ordinary income. 
A)  Carmen recognizes a $2,000 Sec. 1231 gain and Marc recognizes $5,000 as ordinary income. 
B)  Carmen recognizes a $2,000 Sec. 1231 gain and Marc recognizes a $5,000 Sec. 1231 gain. 
C)  There is no recognized gain or loss. 
D)  Carmen recognizes no gain and Marc recognizes $2,000 as ordinary income.

Question 7

Ashley, a U.S. citizen, works in England for part of the year. She earns $40,000 in England, paying $10,000 in income taxes to the British government. Her U.S. income is $60,000 and she pays $12,000 in U.S. taxes. Her U.S. taxes on her worldwide income are $20,000. What is Ashley's excess foreign tax credit? Assume she does not qualify for the foreign- earned income exclusion.

Accepted Answer

A)  $2,000 
B)  $4,000 
C)  $0 
D)  none of the above 
A)  $2,000 
B)  $4,000 
C)  $0 
D)  none of the above

Question 8

The assignment of income doctrine does not apply if the transferor in a Sec. 351 exchange in which no gain is otherwise recognized transfers substantially all the assets and liabilities of the transferor's trade or business to the controlled corporation.

Accepted Answer

A) True 
 B)False

Question 9

Norman transfers machinery that has a $45,000 basis and a $105,000 FMV and $30,000 in money to Elnor Corpor exchange for 50 shares of Elnor stock. The machinery, used in Norman's business, originally cost him $150,000 an subject to an $84,000 liability which Elnor Corporation assumes. Kate exchanges $51,000 cash for the remaining 5 of Elnor stock.
a) What is the amount and character of Norman's recognized gain or loss?
b) What is his basis in the Elnor stock?
c) What is Elnor's basis in the machinery?
d) What is the amount and character of Kate's recognized gain or loss?
e) What is Kate's basis in the Elnor stock?
f) When do Norman and Kate's holding periods for their stock begin?

Accepted Answer

a) Norman's realized gain is $60,000 [($

Question 10

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

Accepted Answer

The general rule is that the assumption

Question 11

Ralph and Yolanda purchased 20% of the initial offering of Major Corporation common stock for $150,000. Major Corporation is a qualifying small business corporation and the stock qualifies as Sec. 1244 stock. Ten months later, Major Corporation files for bankruptcy and the shareholders are notified that the stock is worthless. Ralph and Yolanda, who are married and file a joint return, have a

Accepted Answer

A)  $150,000 capital loss. 
B)  $100,000 ordinary loss; $50,000 capital loss. 
C)  $150,000 ordinary loss. 
D)  $100,000 ordinary loss; $50,000 ordinary loss carryforward. 
A)  $150,000 capital loss. 
B)  $100,000 ordinary loss; $50,000 capital loss. 
C)  $150,000 ordinary loss. 
D)  $100,000 ordinary loss; $50,000 ordinary loss carryforward.

Question 12

Darlene, a U.S. citizen, has foreign- earned income of $150,000 and incurs $33,750 of foreign- earned income taxes. How much of Darlene's foreign income taxes are noncreditable?

Accepted Answer

[1 - ($103

Question 13

Bell Corporation, a domestic corporation, sells jars to its wholly owned foreign subsidiary, Jam. Jam Corporation is incorporated in and pays taxes to Country J. Bell Corporation normally sells jars to a U.S. wholesaler providing services similar to those provided by Jam at a price of $4 per unit. Both wholesalers incur similar costs. If Bell Corporation sells jars to Jam for $3 per unit, what are the tax effects?

Accepted Answer

Bell Corporation's profits increase by $

Question 14

Identify which of the following statements is true.

Accepted Answer

A)  The adjusted basis of stock received in a Sec. 351 transaction is computed by deducting the deferred loss from the FMV of the stock received. 
B)  If stock and boot property are both received in a Sec. 351 exchange, the transferor must allocate the total basis in the contributed property between the stock and boot property based on the relative FMVs of the stock and the boot property. 
C)  The holding period for stock received in a Sec. 351 transaction in exchange for a capital asset begins on the day after the date of the exchange. 
D)  All of the above are false. 
A)  The adjusted basis of stock received in a Sec. 351 transaction is computed by deducting the deferred loss from the FMV of the stock received. 
B)  If stock and boot property are both received in a Sec. 351 exchange, the transferor must allocate the total basis in the contributed property between the stock and boot property based on the relative FMVs of the stock and the boot property. 
C)  The holding period for stock received in a Sec. 351 transaction in exchange for a capital asset begins on the day after the date of the exchange. 
D)  All of the above are false.

Question 15

The transferor's holding period for any boot property received in a Sec. 351 stock exchange

Accepted Answer

A)  begins on the day of the exchange. 
B)  begins on the day after the exchange. 
C)  includes the holding period for the boot transferred. 
D)  is the same as the holding period of the stock received in the exchange. 
A)  begins on the day of the exchange. 
B)  begins on the day after the exchange. 
C)  includes the holding period for the boot transferred. 
D)  is the same as the holding period of the stock received in the exchange.

Question 16

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

Accepted Answer

A)  includes the holding period for the property transferred. 
B)  begins on the day of the exchange. 
C)  begins on the day after the exchange. 
D)  none of the above 
A)  includes the holding period for the property transferred. 
B)  begins on the day of the exchange. 
C)  begins on the day after the exchange. 
D)  none of the above

Question 17

What are the tax consequences to Whitney who owns 50% of Museum Corporation, a qualifying S corporation that is a calendar- year entity, if Museum Corporation reports $60,000 of taxable income? How would your answer change if Museum Corporation reported a $40,000 loss?

Accepted Answer

Whitney must pay taxes on $30,000, his 5

Question 18

Identify which of the following statements is true.

Accepted Answer

A)  Under the check- the- box regulations, an LLC that has one member (owner) may be disregarded as an entity separate from its owner. 
B)  A new LLC that is owned by four members elects to be taxed under its default classification (as a partnership) in its first year of operations. The entity is prohibited from changing its tax classification at any time in the future. 
C)  An unincorporated business may not be taxed as a corporation. 
D)  All of the above are false. 
A)  Under the check- the- box regulations, an LLC that has one member (owner) may be disregarded as an entity separate from its owner. 
B)  A new LLC that is owned by four members elects to be taxed under its default classification (as a partnership) in its first year of operations. The entity is prohibited from changing its tax classification at any time in the future. 
C)  An unincorporated business may not be taxed as a corporation. 
D)  All of the above are false.

Question 19

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?

Accepted Answer

Phil's exchange of assets for stock qual

Question 20

Lynn transfers land having a $50,000 adjusted basis, an $80,000 FMV, and $10,000 cash to Allied Corporation in exchange for 100% of Allied's stock. The corporation assumes the $70,000 mortgage on the land. Which of the following statements is correct?

Accepted Answer

A)  Lynn recognizes no gain and the stock basis is $60,000. 
B)  Lynn recognizes a $10,000 gain and the stock basis is zero. 
C)  Lynn recognizes no gain and the stock basis is $50,000. 
D)  Lynn recognizes a $10,000 gain and the stock basis is $60,000. 
A)  Lynn recognizes no gain and the stock basis is $60,000. 
B)  Lynn recognizes a $10,000 gain and the stock basis is zero. 
C)  Lynn recognizes no gain and the stock basis is $50,000. 
D)  Lynn recognizes a $10,000 gain and the stock basis is $60,000.

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

Nonresident aliens are not allowed to claim the standard deduction.

Any losses on the sale of Section 1244 stock are ordinary.

Identify which of the following statements is true.

The assignment of income doctrine does not apply if the transferor in a Sec. 351 exchange in which no gain is otherwise recognized transfers substantially all the assets and liabilities of the transferor's trade or business to the controlled corporation.

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

Darlene, a U.S. citizen, has foreign- earned income of $150,000 and incurs $33,750 of foreign- earned income taxes. How much of Darlene's foreign income taxes are noncreditable?

Identify which of the following statements is true.

The transferor's holding period for any boot property received in a Sec. 351 stock exchange

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

What are the tax consequences to Whitney who owns 50% of Museum Corporation, a qualifying S corporation that is a calendar- year entity, if Museum Corporation reports $60,000 of taxable income? How would your answer change if Museum Corporation reported a $40,000 loss?

Identify which of the following statements is true.

Lynn transfers land having a $50,000 adjusted basis, an $80,000 FMV, and $10,000 cash to Allied Corporation in exchange for 100% of Allied's stock. The corporation assumes the $70,000 mortgage on the land. Which of the following statements is correct?

Tax Research

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

Filters

Exam 2: Corporate Formations and Capital Structure

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

Nonresident aliens are not allowed to claim the standard deduction.

Any losses on the sale of Section 1244 stock are ordinary.

Identify which of the following statements is true.

The assignment of income doctrine does not apply if the transferor in a Sec. 351 exchange in which no gain is otherwise recognized transfers substantially all the assets and liabilities of the transferor's trade or business to the controlled corporation.

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

Darlene, a U.S. citizen, has foreign- earned income of $150,000 and incurs $33,750 of foreign- earned income taxes. How much of Darlene's foreign income taxes are noncreditable?

Identify which of the following statements is true.

The transferor's holding period for any boot property received in a Sec. 351 stock exchange

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

What are the tax consequences to Whitney who owns 50% of Museum Corporation, a qualifying S corporation that is a calendar- year entity, if Museum Corporation reports $60,000 of taxable income? How would your answer change if Museum Corporation reported a $40,000 loss?

Identify which of the following statements is true.

Lynn transfers land having a $50,000 adjusted basis, an $80,000 FMV, and $10,000 cash to Allied Corporation in exchange for 100% of Allied's stock. The corporation assumes the $70,000 mortgage on the land. Which of the following statements is correct?

Tax Research

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

Filters