Exam 2: Corporate Formations and Capital Structure

If a corporation's total adjusted bases for all properties transferred exceed the total FMV of the properties,the corporation's bases in the property is limited to FMV if no election is made.

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?

Jerry transfers two assets to a corporation as part of a Sec.351 exchange.The first asset has an adjusted basis of $70,000 and an FMV of $50,000.The second asset has an adjusted basis of $70,000 and an FMV of $150,000.The FMV of the stock received is $180,000,and he also receives $20,000 cash.The realized and recognized gain on the second asset is

S corporations must allocate income to shareholders based on their proportionate stock ownership.

Carmen and Marc form Apple Corporation.Carmen transfers land that is Sec.1231 property,with an adjusted basis of $18,000 and an FMV of $20,000 in exchange for one-half of the Apple Corporation stock.Marc transfers equipment that originally cost $28,000 on which he has taken $5,000 in depreciation deductions.The equipment has an FMV of $25,000 and he receives one-half of the stock and a $5,000 short-term note.The transaction meets the requirements of Sec.351.Which statement below is correct?

Barry,Dan,and Edith together form a new corporation;Barry and Dan each contribute property in exchange for stock.Within two weeks after the formation,the corporation issues additional stock to Edith in exchange for property.Barry and Dan each hold 10,000 shares and Edith will receive 9,000 shares.Which transactions will qualify for nonrecognition?

Discuss the IRS reporting requirements under Sec.351.

Lynn transfers land having a $50,000 adjusted basis,an $80,000 FMV,and $10,000 cash to Allied Corporation in exchange for 100% of Allied's stock.The corporation assumes the $70,000 mortgage on the land.Which of the following statements is correct?

Brad forms Vott Corporation by contributing equipment,which has a basis of $50,000 and an FMV of $40,000 in exchange for Vott stock.Brad also contributes $5,000 in cash.If the transaction meets the Sec.351 control and ownership tests,what are the tax consequences to Brad?

The check-the-box regulations permit an LLC to be taxed as a C corporation.

S corporations are flow-through entities in which S income is allocated to shareholders.

Identify which of the following statements is true.

A sole proprietor is required to use the same reporting period for both business and individual tax information.

Azar,who owns 100% of Hat Corporation,transfers land having a $50,000 FMV and a $30,000 adjusted basis to Hat.In return,Azar receives additional shares of Hat common stock having a $40,000 FMV and Cap Corporation common stock having a $10,000 FMV.The Cap Corporation common stock,a capital asset,has a $2,500 basis on Hat's books.What is Azar's realized and recognized gain? Does Hat Corporation recognize a gain on the stock transfer to Azar?

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?

There are no tax consequences of a partnership converting to a C corporation.

Upon formation of a corporation,its assets have the same bases for book and tax purposes.

Under Sec.351,corporate stock may include all of the following except

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?

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