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Exam 8: Corporate Formation, Reorganization, and Liquidation

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Question 61

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Francine incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases. The corporation also assumed a mortgage of $60,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $150,000. a. What amount of gain or loss does Francine realize on the transfer of the property to her corporation? b. What amount of gain or loss does Francine recognize on the transfer of the property to her corporation? c. What is Francine's basis in the stock she receives in her corporation?

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a.$20,000.
b. Francine does not recogn...

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Question 62

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A taxpayer who receives nonvoting stock is not eligible for deferral in a §351 exchange.

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B) False

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Question 63

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Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation in exchange for stock with a fair market value of $600. In addition, Sami received stock with a fair market value of $50 in exchange for services she provided to the corporation in the incorporation process. Which of the following statements best describes the tax result to Sami because of the exchanges?

Boston, Incorporated made a capital contribution of investment property to its 100 percent-owned subsidiary, Hartford Company. The investment property had a fair market value of $1,000,000 and a tax basis to Boston of $250,000. What are the tax consequences to Boston, Incorporated on the contribution of the investment property to Hartford Company and what is the tax basis of the investment property to Hartford Company after the contribution to capital?

Ken and Jim agree to go into business together selling old comic books and records. According to the agreement, Ken will contribute inventory valued at $200,000 in return for 80 percent of the stock in the corporation. Ken's tax basis in the inventory is $100,000. Jim will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualify as organizational expenditures). The accounting services are valued at $50,000. Please answer the following questions about the tax consequences of the transaction to Jim. a. What amount of income gain or loss does Jim realize on the formation of the corporation? b. What amount of gain or loss, if any, does he recognize? c. What is Jim's tax basis in the stock he receives in return for his contribution of services to the corporation?

Continuity of interest as it relates to a tax reorganization focuses on the aggregate equity received by the shareholders of the target corporation in the transaction.

Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. Under the terms of the agreement, Mike will receive the $283,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $68,000. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $136,000. What amount of gain or loss does Mike recognize in the complete liquidation?

Which of the following classes of stock is not allowed to be used in a §351 transaction?

In a tax-deferred transaction, the calculation of a taxpayer's tax basis in property received always begins with its cost to the taxpayer.

In December 2019, Jill incurred a $50,000 loss on the sale of Crown Corporation stock that she purchased in 2010. The stock satisfied all of the §1244 stock requirements at the time of issue. Jill is married to Jack and together they file a joint tax return. How much of the loss can Jack and Jill deduct in 2019, assuming they do not have capital gains in the current or prior years, and what is the character of the loss?

Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Incorporated. After liquidating its remaining inventory and paying off its remaining liabilities, Amelia had the following tax accounting balance sheet. Under the terms of the agreement, Gary will receive the $100,000 cash in exchange for his interest in Amelia. Gary's tax basis in his Amelia stock is $30,000. Laura will receive the building and land in exchange for her interest in Amelia. Laura's tax basis in her Amelia stock is $60,000. What amount of gain or loss does Laura recognize in the complete liquidation and what is Laura's tax basis in the building and land after the complete liquidation?

Simon transferred 100 percent of his stock in Idol Company to Bobcat Corporation in a Type A merger. In exchange he received stock in Bobcat with a fair market value of $2,000,000 plus $500,000 in cash. Simon's tax basis in the Idol stock was $1,500,000. What amount of gain does Simon recognize in the exchange and what is his basis in the Bobcat stock he receives?

April transferred 100 percent of her stock in June Company to March Corporation in a taxable merger. In exchange she received stock in March with a fair market value of $550,000 plus $1,317,500 in cash. April's tax basis in the June stock was $2,151,500. What amount of loss does April recognize in the exchange and what is her basis in the March stock she receives?

Mike and Michelle decided to liquidate their jointly owned corporation, Pennsylvania Corporation. After liquidating its remaining inventory and paying off its remaining liabilities, Pennsylvania had the following tax accounting balance sheet. Under the terms of the agreement, Mike will receive the $211,000 cash in exchange for his 40 percent interest in Pennsylvania. Mike's tax basis in his Pennsylvania stock is $64,750. Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania. Her tax basis in the Pennsylvania stock is $129,500.What amount of gain or loss does Pennsylvania recognize in the complete liquidation?

Francine incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases. The corporation also assumed a mortgage of $63,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $221,500. a. What amount of gain or loss does Francine realize on the transfer of the property to her corporation? b. What amount of gain or loss does Francine recognize on the transfer of the property to her corporation? c. What is Francine's basis in the stock she receives in her corporation?

Camille transfers property with a tax basis of $1,140 and a fair market value of $1,340 to a corporation in exchange for stock with a fair market value of $1,270 and $70 incash in a transaction that qualifies for deferral under section 351. Camille also incurred selling expenses of $133. What is the amount realized by Camille in the exchange?

Casey transfers property with a tax basis of $2,000 and a fair market value of $5,000 to a corporation in exchange for stock with a fair market value of $4,000 and $400 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $600 on the property transferred. Casey also incurred selling expenses of $300. What is the amount realized by Casey in the exchange?

Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger. In exchange, she received stock in Plum with a fair market value of $500,000 plus $500,000 in cash. Simone's tax basis in the Purple stock was $200,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

Which of the following statements does not describe a requirement that must be met in a tax-deferred forward triangular merger?

Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Incorporated. After liquidating its remaining inventory and paying off its remaining liabilities, Amelia had the following tax accounting balance sheet. Under the terms of the agreement, Gary will receive the $100,000 cash in exchange for his interest in Amelia. Gary's tax basis in his Amelia stock is $30,000. Laura will receive the building and land in exchange for her interest in Amelia. Laura's tax basis in her Amelia stock is $60,000. What amount of gain or loss does Amelia recognize in the complete liquidation?