Exam 2: Corporate Formations and Capital Structure

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?

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

Discuss the IRS reporting requirements under Sec.351.

Identify which of the following statements is true.

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

Section 351 applies to an exchange if the contributing shareholders own more than 50% of a corporation's stock after the transfer.

For the last four years,Bob and Ellen have each owned 100 of the 200 outstanding shares of Racer Corporation's stock.Bob transfers land having a $10,000 basis and a $30,000 FMV to Racer for an additional 30 shares of stock,and Ellen transfers $2,000 for an additional two shares of stock.What is the amount of gain or loss that Bob must recognize on the exchange? If the transaction does not comply with the Sec.351 requirements,how can it be made to comply?

Sarah transfers property with an $80,000 adjusted basis and a $100,000 FMV to Super Corporation in a Sec.351 transaction.Sarah receives stock with an $85,000 FMV and a short-term note with a $15,000 FMV.Sarah's basis in the stock is

Which of the following statements is incorrect?

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.

A corporation must recognize a loss when transferring noncash boot property that has declined in value and its stock to a transferor as part of a Sec.351 exchange.

Demarcus is a 50% partner in the DJ partnership.DJ has taxable income for the year of $200,000.Demarcus received a $75,000 distribution from the partnership.What amount of income related to DJ must Demarcus recognize?

Identify which of the following statements is true.

Rose and Wayne form a new corporation.Rose contributes cash for 85% of the stock and Wayne contributes services for 15% of the stock.The tax effect is

Yenhung,who is single,forms a corporation using a tax-free asset transfer,which qualifies under Sec.351.She contributes property having an adjusted basis of $50,000 and an FMV of $40,000.The stock received from the corporation is Sec.1244 stock.When Yenhung sells the stock for $30,000,her loss is

Identify which of the following statements is true.

Joan transfers land (a capital asset)having a $20,000 adjusted basis to Jet Corporation in a transaction qualifying under 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? What is the 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?

Michael contributes equipment with a $25,000 adjusted basis and a $40,000 FMV to Miller Corporation for 25 of its 50 shares of stock.His son,Michael Jr. ,contributes $10,000 cash for the remaining 25 Miller shares.What tax issues should Michael and his son consider with respect to the stock acquisitions?

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

Frans and Arie own 75 shares and 25 shares of Vogel Corporation stock,respectively.There are no other owners.Frans transfers property with a $30,000 adjusted basis and a $50,000 FMV to Vogel Corporation in exchange for an additional 25 shares of Vogel stock.Does this property-for-stock exchange qualify for Sec.351 treatment?