Exam 2: Corporate Formations and Capital Structure

Brad forms Vott Corporation by contributing equipment,which has a basis of $50,000 and an FMV of $40,000 in exchange for Vott stock.Brad also contributes $5,000 in cash.If the transaction meets the Sec.351 control and ownership tests,what are the tax consequences to Brad?

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?

Which of the following statements is true?

Barry,Dan,and Edith together form a new corporation; Barry and Dan each contribute property in exchange for stock.Within two weeks after the formation,the corporation issues additional stock to Edith in exchange for property.Barry and Dan each hold 10,000 shares and Edith will receive 9,000 shares.Which transactions will qualify for nonrecognition?

This year,John,Meg,and Karen form Frost Corporation.John contributes land purchased as an investment four years ago for $25,000 that has a $30,000 FMV in exchange for 30 shares of Frost stock.Meg contributes machinery (Sec.1251 property)purchased four years ago and used in her business having a $50,000 adjusted basis and a $30,000 FMV in exchange for 30 shares of Frost stock.Karen contributes services worth $15,000 and $5,000 cash in exchange for 20 shares of Frost stock. a)What is the amount of John's recognized gain or loss? b)What is John's basis in his Frost shares? When does his holding period begin? c)What is the amount of Meg's recognized gain or loss? d)What is Meg's basis in her Frost shares? When does her holding period begin? e)How much income,if any,must Karen recognize? f)What is Karen's basis in her Frost shares? When does her holding period begin? g)What is Frost Corporation's basis in the land and the machinery? When does its holding period begin? How does Frost Corporation treat the amount paid to Karen for services?

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.Absent an election by Chris,Webb's basis in the land is

Identify which of the following statements is true.

Jerry transfers two assets to a corporation as part of a Sec.351 exchange.The first asset has an adjusted basis of $70,000 and an FMV of $50,000.The second asset has an adjusted basis of $70,000 and an FMV of $150,000.The FMV of the stock received is $180,000,and he also receives $20,000 cash.The realized and recognized gain on the second asset is

Max transfers the following properties to a newly created corporation for $90,000 of stock and $10,000 cash in a transaction that qualifies under Sec.351. Max's recognized gain is

Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec.351 transaction.Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV.Ralph's basis in the stock is

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.

Yolanda transfers land,a capital asset,having a $70,000 adjusted basis and a $125,000 FMV plus $10,000 cash to Jazz Corporation in exchange for all its stock.Jazz Corporation assumes the $100,000 mortgage on the land.The mortgage assumption has no tax avoidance purpose and has the requisite business purpose.What is the amount of Yolanda's realized gain or loss? How much is recognized and what is its character? What is Yolanda's basis in the Jazz stock?

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $80,000 and a short-term note with a $20,000 FMV.Henry's recognized gain is

Will,a shareholder in Wiley Corporation,lent money to the corporation.The corporation is unable to repay him.What tax issues should Will consider with respect to the loan?

Carolyn transfers property with an adjusted basis of $50,000 and an FMV of $60,000 in exchange for Prime Corporation stock in a Sec.351 transaction.Carolyn's basis in the stock is

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?

Anton,Bettina,and Caleb form Cage Corporation.Each contributes appreciated property worth $10,000 for one-third of the Cage stock.Before the exchange,Anton arranges to sell his stock to Darma as soon as he receives it.Does Sec.351 apply?

On January 20 of the current year,a group of ten individuals organize an LLC to conduct an ink-making business in Florida.This year,the LLC is an eligible entity under the check-the-box regulations.How will the LLC be taxed?

S corporations must allocate income to shareholders based on their proportionate stock ownership.