Exam 2: Corporate Formations and Capital Structure

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?

Bread Corporation is a C corporation with earnings of $100,000.It paid $20,000 in dividends to its sole shareholder,Gerald.Gerald also owns 100% of Butter Corporation,an S corporation.Butter had net taxable income of $80,000 and made a $15,000 distribution to Gerald.What income will Gerald report from Bread and Butter's activities?

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

Identify which of the following statements is true.

Chris transfers land with a basis of $40,000 to Webb Corporation in exchange for 100% of Webb's stock.At the date of the transfer,the land had a $30,000 fair market value.Chris makes an election to reduce his basis in Webb's stock to $30,000,so Webb's basis in the land is

Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec.351 transaction.Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV.Ralph's basis in the stock is

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

Business assets of a sole proprietorship are owned by

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $80,000 and a short-term note with a $20,000 FMV.Henry's recognized gain is

Rose and Wayne form a new corporation.Rose contributes cash for 85% of the stock and Wayne contributes services for 15% of the stock.The tax effect 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.

The assignment of income doctrine does not apply if the transferor in a Sec.351 exchange in which no gain is otherwise recognized transfers substantially all the assets and liabilities of the transferor's trade or business to the controlled corporation.

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

Which of the following statements is incorrect?

Will,a shareholder in Wiley Corporation,lent money to the corporation.The corporation is unable to repay him.What tax issues should Will consider with respect to the loan?

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

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?

Joan transfers land (a capital asset)having a $20,000 adjusted basis to Jet Corporation in a transaction qualifying under Sec.351.In exchange,she received 50 shares of Jet Corporation common stock valued at $50,000,a $15,000 Jet Corporation bond due in 10 years,and a $10,000 Jet Corporation note due in 3 years.What tax issues should Joan consider with respect to the transfer? a)What is the amount of Joan's realized gain or loss? What is the amount of Joan's recognized gain or loss? What is the character of Joan's recognized gain or loss? b)What is Joan's basis in her stock? What is Joan's basis in the bond? What is Joan's basis in the note? c)What is Jet Corporation's basis in the land?

Three members form an LLC in the current year.Which of the following statements is incorrect?