Chat with AIExam 2: Corporate Formations and Capital Structure
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?
(80) 
VerifiedNikki has a $15,000 ($5,000 - $20,000)recognized loss.Her ordinary loss under Sec.1244 is $11,000 ($5000 - $16,000 Sec.1244 basis).The remaining $4,000 loss is a capital loss.
On May 1 of the current year,Kiara,Victor,Pam,and Joe form Newco Corporation with the following investments: 
Kiara purchased the land and building several years ago for $12,000 and $50,000,respectively.Kiara has claimed straight-line depreciation on the building.Victor also received a Newco Corporation note for $10,000 due in three years.The note bears interest at a rate acceptable to the IRS.Victor purchased the equipment three years ago for $50,000.Pam also receives $5,000 cash.Pam purchased the van two years ago for $20,000.
a)Does the transaction satisfy the requirements of Sec.351?
b)What are the amounts and character of the reorganized gains or losses to Kiara,Victor,Pam,Joe,and Newco Corporation?
c)What is each shareholder's basis for his or her Newco stock? When does the holding period for the stock begin?
d)What is Newco Corporation's basis for its property and services? When does its holding period begin for each property?
Kiara purchased the land and building several years ago for $12,000 and $50,000,respectively.Kiara has claimed straight-line depreciation on the building.Victor also received a Newco Corporation note for $10,000 due in three years.The note bears interest at a rate acceptable to the IRS.Victor purchased the equipment three years ago for $50,000.Pam also receives $5,000 cash.Pam purchased the van two years ago for $20,000.
a)Does the transaction satisfy the requirements of Sec.351?
b)What are the amounts and character of the reorganized gains or losses to Kiara,Victor,Pam,Joe,and Newco Corporation?
c)What is each shareholder's basis for his or her Newco stock? When does the holding period for the stock begin?
d)What is Newco Corporation's basis for its property and services? When does its holding period begin for each property? (86) Verifieda)Yes,the transaction meets the requirements of Sec.351.Transferors of property (Kiara,Victor,& Pam)own 88.2% (750/850 = 0.882)of the Newco stock.
b)Kiara must recognize a $10,000 gain,the amount by which the $60,000 mortgage assumed by Newco exceeds the $50,000 basis ($12,000 + $38,000)of all the assets transferred by Kiara.The character of the gain is a Sec.1231 gain.Victor must recognize $10,000 of gain (the lesser of his realized gain of $15,000 on the boot received of $10,000).The gain is ordinary income recaptured under Sec.1245.Pam realized a $5,000 loss,which is not recognized even though she received cash.Joe must recognize $10,000 ordinary income on compensation for his services.Newco Corporation recognizes neither a gain nor a loss on the issuance of its stock or note.
c)Kiara's basis is zero ($12,000 + $38,000 - $60,000 + $10,000 gain).Her holding period includes her holding period for the land and building.Victor's basis is $25,000 ($25,000 + $10,000 gain - $10,000 boot).His holding period includes his holding period for the equipment.Pam's basis for her stock is $10,000 ($15,000 - $5,000 boot).Her holding period includes the holding period for the van.Joe's basis for his stock is $10,000.His holding period begins on the day after the exchange.
d)Newco Corporation's basis is: 
The gain is allocated between the two assets based on their relative FMVs.The holding period includes Kiara's holding period. 
The holding period includes Pam's holding period.
The $10,000 in accounting services is deductible by Newco Corporation if received subsequent to the start of operations.If they are preoperating expenses,they should be analyzed under Sec.248.
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
(74) VerifiedB
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.
(87) The transferor's holding period for any stock received in exchange for a capital asset
(83) The City of Providence donates land worth $125,000 to Triple A Corporation to induce it to locate in Providence and provide jobs for its citizens.How much gross income must Triple A Corporation recognize because of the land contribution,and what is the land's basis to Triple A Corporation?
(87) 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.
(76) 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"?
(84) What is the impact on a transferor if a Sec.351 exchange involves the assumption of the shareholder's liabilities by the corporation?
(71) On January 20 of the current year,a group of ten individuals organize an LLC to conduct an ink-making business in Florida.This year,the LLC is an eligible entity under the check-the-box regulations.How will the LLC be taxed?
(71) On January of the current year,Rae purchases 100% of Sun Corporation stock for $30,000.Sun Corporation reports taxable income of $25,000 in the current year,on which it pays tax of $3,750.None of the remaining $21,250 is distributed to Rae.However,on January 1 of the next year,Rae sells her stock to Lee for $51,250.What are the tax consequences to Rae of the sale?
(79) 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?
(86) Mario and Lupita form a corporation in a transaction coming under Sec.351.Lupita transfers property with an adjusted basis of $150,000 and an FMV of $200,000 in exchange for one-half of the stock.The property has an $80,000 mortgage,which the corporation assumes.Lupita has a recognized gain of
(87) 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?
(85) 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
(89) The City of Seattle gives Dotcom Corporation $120,000 cash and land worth $200,000 to induce it to relocate to Seattle.Dotcom Corporation did not spend the cash during the 12 months following the contribution.What are the tax consequences to Dotcom Corporation with respect to the contribution?
(91) 
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