Question 1

Identify which of the following statements is true.

Accepted Answer

A)  The definition of stock under Sec. 351 includes stock rights and warrants. 
B)  The receipt of property other than stock by the transferor will trigger the recognition of gain or loss under Sec. 351. 
C)  The character of the gain recognized by the transferor when boot is received in a Sec. 351 transaction depends on the type of boot received. 
D)  All of the above are false. 
A)  The definition of stock under Sec. 351 includes stock rights and warrants. 
B)  The receipt of property other than stock by the transferor will trigger the recognition of gain or loss under Sec. 351. 
C)  The character of the gain recognized by the transferor when boot is received in a Sec. 351 transaction depends on the type of boot received. 
D)  All of the above are false.

Question 2

Jeremy operates a business as a sole proprietorship.The proprietorship uses the cash method of accounting.He decides to incorporate and transfers the assets and liabilities of the sole proprietorship to the newly formed corporation in exchange for its stock.The assets,which include $10,000 of accounts receivable with a zero basis,have a basis of $20,000 and an FMV of $40,000.The liabilities include accounts payable of $12,000,which will be deductible when paid,and a note payable on medical equipment of $7,000.Jeremy's basis for his stock is

Accepted Answer

A)  $40,000. 
B)  $20,000. 
C)  $13,000. 
D)  $8,000. 
A)  $40,000. 
B)  $20,000. 
C)  $13,000. 
D)  $8,000.

Question 3

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 4

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?

Accepted Answer

Yolanda has a realized gain of $55,000 (

Question 5

Identify which of the following statements is true.

Accepted Answer

A)  If stock and boot property are both received in a Sec. 351 exchange, the transferor must allocate the total basis in the contributed property between the stock and boot property based on the relative FMVs of the stock and the boot property. 
B)  The adjusted basis of stock received in a Sec. 351 transaction is computed by deducting the deferred loss from the FMV of the stock received. 
C)  The holding period for stock received in a Sec. 351 transaction in exchange for a capital asset begins on the day after the date of the exchange. 
D)  All of the above are false. 
A)  If stock and boot property are both received in a Sec. 351 exchange, the transferor must allocate the total basis in the contributed property between the stock and boot property based on the relative FMVs of the stock and the boot property. 
B)  The adjusted basis of stock received in a Sec. 351 transaction is computed by deducting the deferred loss from the FMV of the stock received. 
C)  The holding period for stock received in a Sec. 351 transaction in exchange for a capital asset begins on the day after the date of the exchange. 
D)  All of the above are false.

Question 6

Nikki exchanges property having a $20,000 adjusted basis and a $16,000 FMV for 100 shares of Niftik stock in a transaction qualifying under Sec.351.The stock qualifies as Sec.1244 stock.Nikki's basis in her Niftik stock is $20,000.If Nikki sells her stock for $5,000,what is the amount and character of her loss?

Accepted Answer

Nikki has a $15,000 ($5,000 -

Question 7

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 8

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?

Accepted Answer

S corporations generally are exempt from

Question 9

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

Accepted Answer

A)  not qualify under Sec. 351. 
B)  qualify under Sec. 351 if Matt can show that the sale to Paul was not part of a prearranged plan. 
C)  qualify with respect to Sheila under Sec. 351 whether Matt qualifies or not. 
D)  qualify under Sec. 351 only if an advance ruling has been obtained. 
A)  not qualify under Sec. 351. 
B)  qualify under Sec. 351 if Matt can show that the sale to Paul was not part of a prearranged plan. 
C)  qualify with respect to Sheila under Sec. 351 whether Matt qualifies or not. 
D)  qualify under Sec. 351 only if an advance ruling has been obtained.

Question 10

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

Accepted Answer

A)  $60,000. 
B)  $50,000. 
C)  $10,000. 
D)  $0. 
A)  $60,000. 
B)  $50,000. 
C)  $10,000. 
D)  $0.

Question 11

The tax disadvantages of the C corporation form of doing business include "double taxation." What is meant by the term "double taxation" as used in this context?

Accepted Answer

Double taxation occurs when corporate ea

Question 12

Colleen operates a business as a sole proprietorship.She purchased a computer for $10,000 last year.The computer is five-year recovery property for MACRS purposes and is depreciated under the regular MACRS rules.This year,Colleen incorporates the business and transfers the computer to the new corporation on July 20.The depreciation on the computer for this year allocable to the sole proprietorship is

Accepted Answer

A)  $1,868. 
B)  $1,600. 
C)  $1,333. 
D)  $500. 
A)  $1,868. 
B)  $1,600. 
C)  $1,333. 
D)  $500.

Question 13

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

Accepted Answer

A)  increased by the gain recognized by the corporation. 
B)  decreased by the gain recognized by the transferor. 
C)  decreased by liabilities assumed by the corporation. 
D)  increased by the FMV of boot received from the corporation. 
A)  increased by the gain recognized by the corporation. 
B)  decreased by the gain recognized by the transferor. 
C)  decreased by liabilities assumed by the corporation. 
D)  increased by the FMV of boot received from the corporation.

Question 14

Henry transfers property with an adjusted basis of $95,000 and an FMV of $100,000 to a newly formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $85,000 and a short-term note with a $15,000 FMV.Henry's basis in the stock is

Accepted Answer

A)  $100,000. 
B)  $95,000. 
C)  $90,000. 
D)  $85,000. 
A)  $100,000. 
B)  $95,000. 
C)  $90,000. 
D)  $85,000.

Question 15

Identify which of the following statements is true.

Accepted Answer

A)  The exchange of stock for services rendered is not a taxable transaction. 
B)  The repeal of Sec. 351 would result in more existing businesses being incorporated. 
C)  Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences. 
D)  All of the above are false. 
A)  The exchange of stock for services rendered is not a taxable transaction. 
B)  The repeal of Sec. 351 would result in more existing businesses being incorporated. 
C)  Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences. 
D)  All of the above are false.

Question 16

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?

Accepted Answer

A)  $0 
B)  $60,000 
C)  $20,000 
D)  $160,000 
A)  $0 
B)  $60,000 
C)  $20,000 
D)  $160,000

Question 17

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?

Accepted Answer

Zeema must recognize a $34,000

Question 18

Identify which of the following statements is false.

Accepted Answer

A)  A solely owned corporation is a sole proprietorship. 
B)  A sole proprietorship is a separate taxable entity. 
C)  A sole proprietor is considered to be an employee of the business. 
D)  All of the above are false. 
A)  A solely owned corporation is a sole proprietorship. 
B)  A sole proprietorship is a separate taxable entity. 
C)  A sole proprietor is considered to be an employee of the business. 
D)  All of the above are false.

Question 19

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 20

Dan transfers property with an adjusted basis of $50,000 and an FMV of $100,000 to a newly formed Sun Corporation in exchange for 500 shares of Sun stock,which is one-half of the outstanding Sun stock.His daughter,Sylvia,transfers property with an adjusted basis of $25,000 and an FMV of $50,000 for the other 500 shares at the same time.What are the tax consequences of the two transfers,assuming all the requirements of Sec.351 are met?

Accepted Answer

No gain or loss is recognized by either

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is true.

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

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

The tax disadvantages of the C corporation form of doing business include "double taxation." What is meant by the term "double taxation" as used in this context?

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

Henry transfers property with an adjusted basis of $95,000 and an FMV of $100,000 to a newly formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $85,000 and a short-term note with a $15,000 FMV.Henry's basis in the stock is

Identify which of the following statements is true.

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?

Identify which of the following statements is false.

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

Tax Research

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

US Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

US Taxation of Foreign-Related Transactions

Filters

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.

Identify which of the following statements is true.

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

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

The tax disadvantages of the C corporation form of doing business include "double taxation." What is meant by the term "double taxation" as used in this context?

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

Henry transfers property with an adjusted basis of $95,000 and an FMV of $100,000 to a newly formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $85,000 and a short-term note with a $15,000 FMV.Henry's basis in the stock is

Identify which of the following statements is true.

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?

Identify which of the following statements is false.

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

Tax Research

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

US Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

US Taxation of Foreign-Related Transactions

Filters