Exam 18: Corporations: Organization and Capital Structure

When Pheasant Corporation was formed under § 351,Kristen transferred property (basis of $26,000 and fair market value of $22,500) for § 1244 stock.Kristen's basis in the Pheasant stock is $26,000.Three years later,Pheasant Corporation goes bankrupt and its stock becomes worthless.Kristen,who is single,owned the stock as an investment.Kristen's loss is:

Gabriella and Juanita form Luster Corporation.Gabriella transfers cash of $50,000 for 50 shares of stock,while Juanita transfers information concerning a proprietary process (basis of zero and fair market value of $50,000) for 50 shares of stock.

Mitchell and Powell form Green Corporation.Mitchell transfers property (basis of $105,000 and fair market value of $90,000) while Powell transfers land (basis of $8,000 and fair market value of $75,000) and $15,000 of cash.Each receives 50% of Green Corporation's stock (total value of $180,000).As a result of these transfers:

For transfers falling under § 351,what are the holding period rules for stock received by the shareholder and for the assets transferred to the corporation?

The receipt of nonqualified preferred stock in exchange for the transfer of appreciated property to a controlled corporation results in recognition of gain to the transferor.

When consideration is transferred to a corporation in return for stock,the definition of "property" is important because tax deferral treatment of § 351 is available only to taxpayers who transfer property.

Kim,a real estate dealer,and others form Eagle Corporation under § 351.Kim contributes inventory (land held for resale) in return for Eagle stock.The holding period for the stock includes the holding period of the inventory.

In order to encourage the development of an industrial park,a county donates land to Ecru Corporation.The donation does not result in gross income to Ecru.

What are the tax consequences if an individual investor incurs a loss on the following: a.Stock that is not § 1244 stock. b.Stock that is § 1244 stock. c.Corporate bond. d.An uncollectible loan made to a corporation.

Dick,a cash basis taxpayer,incorporates his sole proprietorship.He transfers the following items to newly created Orange Corporation. Adjusted Basis Fair Market Value Cash $ 10,000 $ 10,000 Building 120,000 175,000 Mortgage payable (secured by the building and held for 15 years) 135,000 135,000 ​ With respect to this transaction:

Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $65,000;land by Tony (basis of $25,000 and fair market value of $35,000).Dove Corporation issues 400 shares of stock,200 each to Sarah and Tony.Thus,each receives stock in Dove worth $50,000.

Joe and Kay form Gull Corporation.Joe transfers cash of $250,000 for 200 shares in Gull Corporation.Kay transfers property with a basis of $50,000 and fair market value of $240,000.She agrees to accept 200 shares in Gull Corporation for the property and for providing bookkeeping services to the corporation in its first year of operation.The value of Kay's services is $10,000.With respect to the transfer:

What is the rationale underlying the tax deferral treatment available under § 351?

A shareholder's holding period for stock received under § 351 can include the holding period of the property transferred to the corporation.

A person who performs services for a corporation in exchange for stock cannot be treated as a member of the transferring group even if that person also transfers some property to the corporation.

A taxpayer may never recognize a loss on the transfer of property in a transaction subject to § 351.

Wade and Paul form Swan Corporation with the following investments.Wade transfers machinery (basis of $40,000 and fair market value of $100,000),while Paul transfers land (basis of $20,000 and fair market value of $90,000) and services rendered (worth $10,000) in organizing the corporation.Each is issued 25 shares in Swan Corporation.With respect to the transfers:

The control requirement under § 351 requires that the person or persons transferring property to the corporation,immediately after the transfer,own stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation.

Trish and Ron form Pine Corporation.Trish transfers inventory (basis of $60,000 and fair market value of $110,000) for 50% of the stock in Pine.Ron transfers machinery (basis of $20,000 and fair market value of $60,000) and agrees to serve as manager of Pine Corporation for one year for 50% of the stock.What are the tax consequences to Trish,Ron,and Pine Corporation?

Eileen transfers property worth $200,000 (basis of $190,000) to Goldfinch Corporation.In return,she receives 80% of the stock in Goldfinch Corporation (fair market value of $180,000) and a long-term note (fair market value of $20,000) executed by Goldfinch and made payable to Eileen.Eileen recognizes gain on the transfer of: