Question 1

Identify which of the following statements is true.

Accepted Answer

A) Property contributions to a corporation by nonshareholders will result in income recognition by the corporation if the contributed property is subsequently sold. 
B) Section 1244 ordinary loss treatment is available to any shareholder. 
C) A taxpayer must make a special election to take advantage of Sec.1244. 
D) All of the above are false. 
A) Property contributions to a corporation by nonshareholders will result in income recognition by the corporation if the contributed property is subsequently sold. 
B) Section 1244 ordinary loss treatment is available to any shareholder. 
C) A taxpayer must make a special election to take advantage of Sec.1244. 
D) All of the above are false.

Question 2

Identify which of the following statements is true.

Accepted Answer

A) Regular corporation and C corporation are synonymous terms. 
B) Regular corporation and S corporation are synonymous terms. 
C) A partner is generally considered to be an employee of the partnership. 
D) All of the above are false. 
A) Regular corporation and C corporation are synonymous terms. 
B) Regular corporation and S corporation are synonymous terms. 
C) A partner is generally considered to be an employee of the partnership. 
D) All of the above are false.

Question 3

Tanicia owns all 100 shares of Midwest Corporation's stock,valued at $100,000.Gwen owns property that has a $15,000 adjusted basis and a $100,000 FMV.Gwen contributes the property to Midwest Corporation in exchange for 100 shares of newly issued Midwest stock.Does Sec.351 apply to Gwen's exchange? What is the amount of her realized gain or loss? How much is recognized?

Accepted Answer

Section 351 does not apply because Gwen

Question 4

Identify which of the following statements is true.

Accepted Answer

A) The transferor must recapture depreciation when exchanging Sec.1245 property in all transactions coming under Sec.351. 
B) A corporation receiving property in a Sec.351 exchange can select any MACRS depreciation method for the asset. 
C) When depreciable property is transferred to a corporation in a Sec.351 exchange in which no gain is recognized,the corporation must continue to use the transferor's depreciation method and recovery period for the property. 
D) All of the above are false. 
A) The transferor must recapture depreciation when exchanging Sec.1245 property in all transactions coming under Sec.351. 
B) A corporation receiving property in a Sec.351 exchange can select any MACRS depreciation method for the asset. 
C) When depreciable property is transferred to a corporation in a Sec.351 exchange in which no gain is recognized,the corporation must continue to use the transferor's depreciation method and recovery period for the property. 
D) All of the above are false.

Question 5

S corporations are flow-through entities in which S income is allocated to shareholders.

Accepted Answer

A) True 
 B)False

Question 6

In accordance with the rules that apply to corporate formation,which one of the following features does not make an issue of preferred stock "nonqualified"?

Accepted Answer

A) The shareholder can require the corporation to redeem the stock. 
B) The dividend rate on the stock may not vary with interest rates,commodity prices,or other similar indices. 
C) The corporation is either required to redeem the stock or is likely to exercise a right to redeem the stock. 
D) The stock is limited and preferred as to dividends. 
A) The shareholder can require the corporation to redeem the stock. 
B) The dividend rate on the stock may not vary with interest rates,commodity prices,or other similar indices. 
C) The corporation is either required to redeem the stock or is likely to exercise a right to redeem the stock. 
D) The stock is limited and preferred as to dividends.

Question 7

Darnell,who is single,exchanges property having a $60,000 adjusted basis and a $50,000 FMV for 1,000 shares of Fox Corporation stock in a transaction qualifying under Sec.351.The stock qualifies as Sec.1244 stock.If Darnell sells his stock for $30,000,what is the amount and character of his recognized gain or loss?

Accepted Answer

Darnell has a $20,000 ordinary loss and

Question 8

Gene purchased land five years ago as an investment.The land cost him $200,000 and is now worth $530,000.Gene plans to transfer the land to Dee Corporation,which will subdivide the land and sell individual parcels.Dee Corporation's profits on the land will be ordinary income.What are the tax consequences of the asset transfer and land sales if Gene contributes the land to Dee Corporation in exchange for all of its stock? What alternative methods can be used to structure the transaction to achieve better tax consequences?

Accepted Answer

Gene recognizes no gain when he transfer

Question 9

Lynn transfers property with a $56,000 adjusted basis and a $100,000 FMV to Florida Corporation for 75 shares of 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?

Accepted Answer

a)Neither Lynn nor Fred recognizes any g

Question 10

This year,John,Meg,and Karen form Frost Corporation.John contributes land purchased as an investment four years ago for $15,000 that has a $30,000 FMV in exchange for 30 shares of Frost stock.Meg contributes machinery (Sec.1231 property)purchased four years ago and used in her business having a $35,000 adjusted basis and a $30,000 FMV in exchange for 30 shares of Frost stock.Karen contributes services worth $20,000 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 her services?

Accepted Answer

a)Since Sec.351 does not apply because 2

Question 11

Beth transfers an asset having an FMV of $200,000 and an adjusted basis of $150,000 to ABC Corporation in a Sec.351 transaction.Beth receives in exchange ABC common stock having an FMV of $175,000 and Zeus Corporation common stock (a capital asset)having an FMV of $25,000 and a basis of $10,000 to ABC Corporation.ABC Corporation must recognize

Accepted Answer

A) no gain. 
B) a $15,000 capital gain. 
C) a $25,000 capital gain. 
D) a $50,000 capital gain. 
A) no gain. 
B) a $15,000 capital gain. 
C) a $25,000 capital gain. 
D) a $50,000 capital gain.

Question 12

Identify which of the following statements is true.

Accepted Answer

A) Section 351 applies exclusively to the formation of a new corporation. 
B) Section 351 applies to property transfers in exchange for stock. 
C) Section 351 only applies to individual transferors. 
D) All of the above are false. 
A) Section 351 applies exclusively to the formation of a new corporation. 
B) Section 351 applies to property transfers in exchange for stock. 
C) Section 351 only applies to individual transferors. 
D) All of the above are false.

Question 13

Identify which of the following statements is true.

Accepted Answer

A) The assignment of income doctrine requires a cash method of accounting for a transferor/shareholder to recognize income when accounts receivable are transferred by the shareholder to the corporation in a Sec.351 exchange in which no gain is otherwise recognized. 
B) The assignment of income doctrine is a legislative requirement that income be taxed to the person who earns it. 
C) The assignment of income doctrine does not apply if the transferor in a Sec.351 exchange in which no gain is otherwise recognized transfers when a sole proprietor transfers substantially all the assets and liabilities of the transferor's trade or business to a controlled corporation. 
D) All of the above are false. 
A) The assignment of income doctrine requires a cash method of accounting for a transferor/shareholder to recognize income when accounts receivable are transferred by the shareholder to the corporation in a Sec.351 exchange in which no gain is otherwise recognized. 
B) The assignment of income doctrine is a legislative requirement that income be taxed to the person who earns it. 
C) The assignment of income doctrine does not apply if the transferor in a Sec.351 exchange in which no gain is otherwise recognized transfers when a sole proprietor transfers substantially all the assets and liabilities of the transferor's trade or business to a controlled corporation. 
D) All of the above are false.

Question 14

Identify which of the following statements is true.

Accepted Answer

A) To determine a shareholder's basis in a single class of stock received in a Sec.351 exchange,the FMV of the stock received must be known. 
B) If more than one asset is transferred by the transferor in a Sec.351 nonrecognition transaction,the transferor is assumed to have received a proportionate share of the stock,cash,and other boot property for each property transferred based upon the assets' relative FMVs. 
C) The transferor's basis for any noncash boot property received in a Sec.351 transaction is the boot's FMV reduced by any unrecognized gain. 
D) All of the above are false. 
A) To determine a shareholder's basis in a single class of stock received in a Sec.351 exchange,the FMV of the stock received must be known. 
B) If more than one asset is transferred by the transferor in a Sec.351 nonrecognition transaction,the transferor is assumed to have received a proportionate share of the stock,cash,and other boot property for each property transferred based upon the assets' relative FMVs. 
C) The transferor's basis for any noncash boot property received in a Sec.351 transaction is the boot's FMV reduced by any unrecognized gain. 
D) All of the above are false.

Question 15

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?

Accepted Answer

A) $250,000 income; $250,000 basis 
B) $250,000 income; $0 basis 
C) $0 income; $250,000 basis 
D) $0 income; $0 basis 
A) $250,000 income; $250,000 basis 
B) $250,000 income; $0 basis 
C) $0 income; $250,000 basis 
D) $0 income; $0 basis

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

In which of the following independent situations is the Sec.351 control requirement met?
a)Jane transfers property to Jet Corporation for 75% of Jet Corporation's stock,and Susan provides services to Jet Corporation for the remaining 25% of Jet Corporation stock.
b)Paul transfers property to Pride Corporation for 60% of Pride's stock,and Bob transfers property worth $15,000 and performs services worth $25,000 for the remaining 40% of Pride's stock.
c)Herb and his wife Carolyn each have owned 50% of the 100 outstanding shares of Wykert Corporation stock since it was formed three years ago.In the current year,their daughter,Cindy,transfers property to Wykert Corporation for 50 newly issued shares of Wykert stock.
d)John and Pam develop a plan to form PJ Corporation on May 2 of this year.John transfers property worth $50,000 for 50 shares of PJ Corporation stock.As part of the single plan to incorporate,Pam transfers $50,000 cash for 50 shares of PJ Corporation stock on July 1.
e)Assume the same facts as in Part (d),except that John has a prearranged plan to sell 30 of his shares to Steven on September 1.

Accepted Answer

a)Not met.Transferors of property receiv

Question 18

For Sec.351 purposes,the term "property" does not include

Accepted Answer

A) cash. 
B) accounts receivable. 
C) inventory. 
D) services rendered. 
A) cash. 
B) accounts receivable. 
C) inventory. 
D) services rendered.

Question 19

Discuss the impact of the contribution of cash as part of a Sec.351 exchange.

Accepted Answer

Cash is treated as property when it is c

Question 20

Discuss the tax planning opportunities that are available in forming a corporation when one of the parties owns property that has a high basis and a low FMV.

Accepted Answer

The plan should be formulated to allow t

Exam 2: Corporate Formations and Capital Structure

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is true.

S corporations are flow-through entities in which S income is allocated to shareholders.

In accordance with the rules that apply to corporate formation,which one of the following features does not make an issue of preferred stock "nonqualified"?

Identify which of the following statements is true.

Identify which of the following statements is true.

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?

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

For Sec.351 purposes,the term "property" does not include

Discuss the impact of the contribution of cash as part of a Sec.351 exchange.

Discuss the tax planning opportunities that are available in forming a corporation when one of the parties owns property that has a high basis and a low FMV.

Tax Research

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