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Exam 4: Corporations: Organization and Capital Structure

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Question 51

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How is the transfer of liabilities in a property transaction generally treated for tax purposes? How is a transfer of liabilities generally treated in a § 351 transaction? What exceptions could arise to this usual treatment in a §351 setting?

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Generally when another party assumes a l...

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Question 52

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Four years ago,Don,a single taxpayer,acquired stock in a corporation that qualified as a small business corporation under § 1244,at a cost of $60,000.Don wants to give his son,Ron,$20,000 to help finance Ron's college education.The stock is currently worth $20,000.Don is considering selling the stock in the current year for $20,000 and giving the cash to Ron.As an alternative,Don could give the stock to Ron and let Ron sell it for $20,000.Which alternative should Don choose?

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Don should sell the stock.He will have a...

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Question 53

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Mitchell and Lane form Green Corporation. Mitchell transfers property (basis of $105,000 and fair market value of $90,000) while Lane 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:

In a § 351 transaction,Gerald transfers equipment worth $85,000 (basis of $120,000)in exchange for all of the Rust Corporation stock. Gerald's stock basis is $120,000 and Rust's basis in the equipment is $120,000.

A secret process and patentable inventory both constitute "property" under § 351. Consequently,neither gain nor loss is recognized on the transfer of such "property" to a controlled corporation.

Mary transfers equipment (basis of $25,000 and fair market value of $120,000) to White Corporation. In return,Mary receives 80% of White Corporation's stock (worth $70,000) and an automobile (fair market value of $15,000) . In addition,there is an outstanding mortgage of $35,000 (taken out 5 years ago) on the equipment,which White Corporation assumes. With respect to this transaction:

Rob and Sharon form Swallow Corporation with the following investments. Each receives 50% of Swallow's stock.In addition,Sharon receives cash of $40,000.One result of these transfers is that Sharon has a:

In 2001,Donna transferred assets (basis of $300,000 and fair market value of $250,000)to Egret Corporation in return for 200 shares of § 1244 stock. Due to § 351,the transfer was nontaxable; therefore,Donna's basis in the Egret stock is $300,000. In 2002,Donna sells 100 of these shares to Walter (a family friend)for $100,000. In 2008,Egret Corporation files for bankruptcy,and its stock becomes worthless. a.How much loss may Donna recognize in 2002 and 2008? What is the nature of this loss? [Note: Donna is married and always files a joint return.] b.How much loss may Walter (a single taxpayer) recognize in 2008, and what is the nature of such loss?

In order to induce Yellow Corporation to build a new manufacturing facility in Knoxville,Tennessee,the city donates land (fair market value of $400,000) and cash of $100,000 to the corporation. Several months after the donation,Yellow Corporation spends $450,000 (which includes the $100,000 received from Knoxville) on the construction of a new plant located on the donated land.

Kim owns 100% of the stock of Cardinal Corporation.In the current year Kim transfers an installment obligation,tax basis of $30,000 and fair market value of $200,000,for additional stock in Cardinal worth $200,000.

Nick exchanges property (basis of $100,000; fair market value of $3,000,000),for 75% of the stock of Yellow Corporation. The other 25% of the stock is owned by Gloria who acquired it several years ago. What are the tax consequences to Nick?