Exam 2: Corporate Formations and Capital Structure

What is the tax treatment for a contribution of capital to a corporation by a nonshareholder?

Matt and Sheila form Krupp Corporation.Matt contributes property with an FMV of $55,000 and a basis of $35,000.Sheila contributes property with an FMV of $75,000 and a basis of $40,000.Matt sells his stock to Paul shortly after the exchange.The transaction will

Stu Walker has owned all 200 shares of Lance Corporation's stock for the past six years.This year,Megan Jones contributes property with a $100,000 basis and a $160,000 FMV for 160 newly issued Lance shares.At the same time,Stu contributes $30,000 in cash for 30 newly issued Lance shares.What tax issues should Megan and Stu consider with respect to the stock acquisitions?

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

Jane and Joe plan to go into business together.They plan to incorporate the business.What tax issues should they consider when deciding whether or not to elect S corporation status? • Are their individual marginal tax rates lower or higher than a C Corporation's marginal tax rates? • Do they anticipate profits or losses in the first few years of business? • Will the corporation generate any capital gains or losses? • Do they plan to withdraw money from the corporation? • Will they want or need fringe benefits? • Do they plan to use a calendar year end or a fiscal year end?

The transferee corporation's basis in property received in a Sec.351 exchange is

On July 9,2008,Tom purchased a computer (five-year property for MACRS purposes)for $6,000,which he used in his sole proprietorship.He claimed $1,200 (0.20 × $6,000)of depreciation for 2008.On February 9,2009,he transfers the computer and other assets of his sole proprietorship to Brewer Corporation in exchange for Brewer stock in a transfer qualifying under Sec.351.What is the amount of depreciation for 2008 claimed by Tom? What is the amount of depreciation for 2009 claimed by Brewer Corporation? What is Brewer's basis in the computer on the date of transfer?

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

Which of the following statements is incorrect?

Zoe Ann transfers machinery having a $36,000 adjusted basis and a $70,000 FMV for all 100 shares of Zeema Corporation's stock.Before the transfer,Zoe Ann used the machinery in her business.She originally paid $50,000 for the machinery and claimed $14,000 of depreciation before transferring the machinery.Zoe Ann recaptures no depreciation on the transfer and the recapture potential is transferred to Zeema Corporation.Zeema sells the machine for $66,000 after it had depreciated the machine an additional $4,000.What is Zeema's gain on the machine and what is its character?

Identify which of the following statements is false.

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

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?

Silvia transfers to Leaf Corporation a machine she had purchased a year ago for $50,000.The machine has a $40,000 adjusted basis and a $55,000 FMV on the transfer date.$10,000 in depreciation was claimed by Silvia prior to the transfer.Silvia receives all 1,000 shares of Leaf Corporation stock worth $50,000 and a two-year note with a $5,000 FMV.What is the amount and character of the recognized gain or loss?

A shareholder's basis in stock received in a Sec.351 transaction is

Abby owns all 100 shares of Rent Corporation's stock,valued at $10,000.Bart owns property that has a $1,500 adjusted basis and a $10,000 FMV.Bart contributes the property to Rent Corporation in exchange for 100 shares of newly issued Rent stock.Abby transfers additional property worth $10,000 for an additional 10 shares of newly issued Rent stock too.Does Sec.351 apply?

Norman transfers machinery that has a $45,000 basis and a $105,000 FMV and $30,000 in money to Elnor Corporation in exchange for 50 shares of Elnor stock.The machinery,used in Norman's business,originally cost him $150,000 and is subject to an $84,000 liability which Elnor Corporation assumes.Kate exchanges $51,000 cash for the remaining 50 shares 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?

Reba,a cash basis accountant,transfers all of the assets and liabilities of her practice to Able Corporation in exchange for all of Able Corporation's stock.The assets include $20,000 of accounts receivable.What is the Corporation's basis in the receivables? Will the corporation be taxed on the receivables,as they are collected?

South Corporation acquires 100 shares of treasury stock for $10,000.The next year,South reissues the 100 shares for land having a $15,000 FMV.What is the amount of gain or loss realized by South Corporation,and how much is recognized?

Identify which of the following statements is true.