Question 1

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:

Accepted Answer

A) $26,000 capital. 
B) $22,500 ordinary and $3,500 capital. 
C) $3,500 ordinary and $22,500 capital. 
D) $26,000 ordinary. 
E) None of the above.

Question 2

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.

Accepted Answer

A) The transfers to Luster are fully taxable to both Gabriella and Juanita. 
B) Juanita must recognize gain of $50,000. 
C) Because Juanita is required to recognize gain on the transfer,Gabriella also must recognize gain. 
D) Neither Gabriella nor Juanita will recognize gain on the transfer. 
E) None of the above.

Question 3

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:

Accepted Answer

A) Mitchell has a recognized loss of $15,000,and Powell has a recognized gain of $67,000. 
B) Neither Mitchell nor Powell has any recognized gain or loss. 
C) Mitchell has no recognized loss,but Powell has a recognized gain of $15,000. 
D) Green Corporation will have a basis in the land of $23,000. 
E) None of the above.

Question 4

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?

Accepted Answer

The answer of For transfers falling under § 351,what are...

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

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.

Accepted Answer

The answer of What are the tax consequences if an...

Question 10

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:

Accepted Answer

A) Orange Corporation's basis in the building is $120,000. 
B) Dick has no recognized gain. 
C) Dick has a recognized gain of $5,000. 
D) Dick has a recognized gain of $10,000. 
E) None of the above.

Question 11

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.

Accepted Answer

A) Section 351 cannot apply since Sarah should have received 260 shares instead of only 200. 
B) Section 351 may apply because stock need not be issued to Sarah and Tony in proportion to the value of the property transferred. 
C) Tony's basis in the stock of Dove Corporation is $50,000. 
D) As a result of the transfer,Tony recognizes a gain of $10,000. 
E) None of the above.

Question 12

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:

Accepted Answer

A) Gull Corporation has a basis of $240,000 in the property transferred by Kay. 
B) Neither Joe nor Kay recognizes gain or income on the exchanges. 
C) Gull Corporation has a compensation deduction of $10,000. 
D) Gull capitalizes $10,000 as organizational costs. 
E) None of the above.

Question 13

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

Accepted Answer

The answer of What is the rationale underlying the tax...

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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:

Accepted Answer

A) Wade has no recognized gain;Paul recognizes income/gain of $80,000. 
B) Neither Wade nor Paul has recognized gain or income on the transfers. 
C) Swan Corporation has a basis of $30,000 in the land transferred by Paul. 
D) Paul has a basis of $30,000 in the 25 shares he acquires in Swan Corporation. 
E) None of the above.

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

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?

Accepted Answer

The answer of Trish and Ron form Pine Corporation.Trish transfers...

Question 20

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:

Accepted Answer

A) $0. 
B) $10,000. 
C) $20,000. 
D) $190,000. 
E) None of the above.

Exam 18: Corporations: Organization and Capital Structure

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.

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.

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.

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.