Question 1

Individuals Rhett and Scarlet form Lady Corporation.Rhett transfers land and a building with a $140,000 adjusted basis and a $230,000 FMV in exchange for 50% of the stock of Lady Corporation worth $210,000 and a $20,000 note.Scarlet contributes cash of $230,000 for 50% of the stock of Lady Corporation worth $210,000 and a note of the Lady Corporation valued at $20,000.Rhett's recognized gain on the transfer is

Accepted Answer

Rhett's recognized gain is the excess of the fair market value of the stock and the note received over his adjusted basis in the land and building. 
Fair market value of the stock and note received: $210,000 + $20,000 = $230,000
Adjusted basis in the land and building: $140,000
Recognized gain: $230,000 - $140,000 = $90,000
However, Rhett only received 50% of the stock and note, so his recognized gain is 50% of $90,000, which is $45,000. But since he received a note valued at $20,000, his recognized gain is reduced by that amount, leaving a final recognized gain of $25,000. Therefore, option B is the correct answer.

Question 2

Individuals Opal and Ben form OB Corporation.Opal transfers land and a building with a $550,000 adjusted basis and a $625,000 FMV in exchange for 50% of the stock of the OB Corporation worth $610,000 and a $15,000 note.Ben transfers cash of $625,000 for 50% of the stock worth $610,000 and a note of the OB Corporation valued at $15,000.Opal's basis in the stock received is

Accepted Answer

The answer of Individuals Opal and Ben form OB Corporation.Opal...

Question 3

Depreciation recapture does not apply to a transfer coming under Sec.351 unless the transferor recognizes gain on depreciable property that is transferred.

Accepted Answer

Depreciation recapture only applies if the transferor recognizes gain on depreciable property, which would not be the case in a transfer under Sec. 351. Therefore, depreciation recapture would not apply in that situation.

Question 4

In order for the Sec.351 nonrecognition rules to apply,the transferor-shareholders in aggregate must control the transferee corporation by owning more than 50% of its stock immediately after the exchange.

Accepted Answer

The answer of In order for the Sec.351 nonrecognition rules...

Question 5

Individuals Gayle and Marcus form GM Corporation.Gayle transfers land and a building with a $750,000 adjusted basis and a $830,000 FMV in exchange for 50% of the stock of the GM Corporation worth $800,000 and a $30,000 note.Marcus transfers cash of $830,000 for 50% of the stock worth $800,000 and a note of the GM Corporation valued at $30,000.The basis of the land and building to GM Corporation is

Accepted Answer

The answer of Individuals Gayle and Marcus form GM Corporation.Gayle...

Question 6

If a shareholder transfers liabilities to a corporation in a Sec.351 transfer,there is no effect on the shareholder's stock basis due to the corporation's assumption of liabilities.

Accepted Answer

In a Sec. 351 transfer, the assumption of liabilities by the corporation generally reduces the shareholder's stock basis, as the liabilities are treated as money received by the shareholder.

Question 7

Danielle transfers land with a $100,000 FMV (basis $95,000)and $85,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $15,000.The corporation qualifies as a 351 transfer.The corporation assumes the $85,000 mortgage.What is the adjusted basis of the property to the corporation?

Accepted Answer

In a 351 transfer, the transferor's basis in the property transfers to the corporation. Therefore, the adjusted basis of the property to the corporation is $95,000. Since the corporation assumes the $85,000 mortgage, the corporation's adjusted basis in the property is $95,000 - $85,000 = $10,000. The FMV of the stock received is irrelevant to the adjusted basis of the property.

Question 8

Individuals Julie and Brandon form JB Corporation.Julie transfers cash of $425,000 in exchange for 50% of the stock of the JB Corporation worth $410,000 and a $15,000 note.Brandon transfers equipment with a $390,000 adjusted basis and a $425,000 FMV for 50% of the stock worth $410,000 and a note of the JB Corporation valued at $15,000.Brandon's basis in the stock received is

Accepted Answer

Brandon's basis in the stock received is equal to the FMV of the equipment he contributed, which is $425,000, minus the amount of the note he received, which is $15,000. Therefore, his basis in the stock is $410,000.

Question 9

Individuals Terry and Jim form TJ Corporation.Terry transfers cash of $930,000 in exchange for 50% of the stock of the TJ Corporation worth $900,000 and a $30,000 note.Jim transfers equipment with a $890,000 adjusted basis and a $930,000 FMV for 50% of the stock worth $900,000 and a note of the TJ Corporation valued at $30,000.The basis of the equipment to TJ Corporation is

Accepted Answer

The basis of the equipment transferred by Jim is the adjusted basis of $890,000, as stated in the problem. Therefore, the basis of the equipment to TJ Corporation is $890,000.

Question 10

A manufacturing corporation is owned equally by 10 unrelated individuals.Its taxable income this year is $100,000 and its regular federal income tax liability is $22,250.The company claims a $15,000 dividends-received deduction and pays $25,000 dividends to its shareholders.The corporation had accumulated earnings and profits of $220,000 at the end of the preceding year.The company's reasonable needs of the business at the end of the year of $240,000.What is the amount of the accumulated earnings tax?

Accepted Answer

The answer of A manufacturing corporation is owned equally by...

Question 11

Tara transfers land with a $690,000 adjusted basis and a $700,000 FMV to a corporation in a Sec.351 transfer.Immediately after the transfer,Tara owns 100% of the corporation-stock with a FMV of $615,000.In addition,$85,000 of liabilities are assumed by the corporation with respect to the transfer.No other property is transferred.Tara's recognized gain on the transfer is

Accepted Answer

Under Section 351, no gain or loss is recognized if property is transferred to a corporation solely in exchange for stock and the transferor is in control of the corporation immediately after the exchange. Here, Tara owns 100% of the corporation after the transfer, and the liabilities assumed do not exceed the adjusted basis of the property transferred, so no gain is recognized.

Question 12

Which of the statements is inaccurate regarding requirements for nonrecognition of gain or loss upon the transfer of assets to a corporation in exchange for stock?

Accepted Answer

Depreciation recapture applies to a transfer which falls under Sec. 368. Sec. 351 only applies to transfers of property to a corporation in exchange for stock.

Question 13

Daniel transfers land with a $92,000 adjusted basis and a $100,000 FMV to a corporation in a Sec.351 transfer.Immediately after the transfer,Daniel owns 100% of the corporation-stock with a FMV of $15,000.In addition,$85,000 of liabilities are assumed by the corporation with respect to the transfer.No other property is transferred.Daniel's basis in the stock is

Accepted Answer

Daniel's basis in the stock is calculated as the adjusted basis of the land ($92,000) minus the liabilities assumed by the corporation ($85,000), resulting in a basis of $7,000.

Question 14

Individuals Bert and Tariq form Shark Corporation.Bert transfers equipment with a $290,000 adjusted basis and a $335,000 FMV for 50% of the stock worth $310,000 and a note of Shark Corporation valued at $25,000.Tariq transfers cash of $335,000 in exchange for 50% of the stock of Shark Corporation worth $310,000 and a $25,000 note.Bert's recognized gain is

Accepted Answer

The answer of Individuals Bert and Tariq form Shark Corporation.Bert...

Question 15

In a Sec.351 transfer,the corporation takes the shareholder's adjusted basis in the contributed property,regardless of whether the property's FMV is greater than or less than its adjusted basis at the date of contribution.

Accepted Answer

The answer of In a Sec.351 transfer,the corporation takes the...

Question 16

The term "thin capitalization" means that the corporation is financed primarily with capital stock rather than debt.

Accepted Answer

The term "thin capitalization" refers to a situation where a corporation has a high level of debt relative to equity.

Question 17

Bob transfers assets with a $100,000 FMV (basis $60,000)and $70,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $30,000.The corporation assumes the $70,000 mortgage.The transfer qualifies under Sec.351.What is Bob's gain recognized on the transfer?

Accepted Answer

Under Sec. 351, no gain or loss is recognized on the transfer of property to a corporation in exchange for stock if the transfer is made solely in exchange for stock and the transferor is in control of the corporation immediately after the transfer.
In this case, Bob transferred assets with an FMV of $100,000 (basis $60,000) and $70,000 of liabilities to the corporation in exchange for 100% of the corporation's stock with a FMV of $30,000. The corporation assumed the $70,000 mortgage. 
Bob's recognized gain is calculated as follows:
Realized Gain = FMV of Property Transferred - Adjusted Basis of Property Transferred
= $100,000 - $60,000
= $40,000
However, since the transfer qualifies under Sec. 351, no gain is recognized. Therefore, the answer is B, $10,000 ($40,000 realized gain minus $30,000 FMV of the stock received).

Question 18

Peter transfers an office building into a new corporation in exchange for 100 percent of the stock.In addition,the corporation assumes the mortgage on the building.Peter will treat the debt relief as boot and have to recognize gain.

Accepted Answer

The answer of Peter transfers an office building into a...

Question 19

If certain requirements are met,Sec.351 permits deferral of recognition of gain or loss on the transfer of property to a corporation solely in exchange for stock of the corporation.

Accepted Answer

Sec.351 of the Internal Revenue Code allows for deferral of gain or loss recognition on property transfers to corporations if certain requirements are met, such as the property being transferred solely in exchange for stock of the corporation.

Question 20

Slimtin Corporation has $400,000 of regular taxable income.It has depreciation adjustments of $100,000 (MACRS depreciation in excess of 150% declining balance method),and its adjusted current earnings is $600,000.
Part A-Calculate Slimtin's AMT liability.
Part B-Slimtin has a $41,000 AMT credit carryover from last year.How much,if any,can be applied this year?

Accepted Answer

The answer of Slimtin Corporation has $400,000 of regular taxable...

Quiz 16: Corporations