Question 1

The City of Portland gives Data Corporation $60,000 cash and land worth $100,000 to induce it to move. The cash was not spent during the 12 months following contribution. The contribution results in

Accepted Answer

The contribution results in income recognition in the amount of $160,000 to the corporation at the time of contribution because both the cash and the land are considered as income to the corporation when received.

Question 2

Ra Corporation issues a twenty-year obligation at its $1,000 face amount. Rames purchases the obligation for $1,000 on the issue date. Due to a decline in interest rates, Ra calls the obligation by paying $1,010 to each of the holders of the twenty-year obligations. What is the tax treatment of the $1,010 by Ra and Rames?

Accepted Answer

The answer of Ra Corporation issues a twenty-year obligation at...

Question 3

Yenhung, who is single, forms a corporation using a tax-free asset transfer, which qualifies under Sec. 351. She contributes property having an adjusted basis of $50,000 and an FMV of $40,000. The stock received from the corporation is Sec. 1244 stock. When Yenhung sells the stock for $30,000, her loss is

Accepted Answer

The answer of Yenhung, who is single, forms a corporation...

Question 4

Discuss the IRS reporting requirements under Sec. 351.

Accepted Answer

The answer of Discuss the IRS reporting requirements under Sec....

Question 5

Why would a transferor want to avoid the nonrecognition of gain under Sec. 351? How can the nonrecognition provision of Sec. 351 be avoided?

Accepted Answer

The answer of Why would a transferor want to avoid...

Question 6

This year, the City of Seattle gives Dotcom Corporation $120,000 cash and land worth $200,000 to induce it to relocate to Seattle. Dotcom did not spend the cash during the 12 months following the contribution. What are the tax consequences to Dotcom?

Accepted Answer

The answer of This year, the City of Seattle gives...

Question 7

Ralph and Yolanda purchased 20% of the initial offering of Major Corporation common stock for $150,000. Major Corporation is a qualifying small business corporation and the stock qualifies as Sec. 1244 stock. Ten months later, Major Corporation files for bankruptcy and the shareholders are notified that the stock is worthless. Ralph and Yolanda, who are married and file a joint return, have a

Accepted Answer

The answer of Ralph and Yolanda purchased 20% of the...

Question 8

What is the tax treatment for a contribution of capital to a corporation by a nonshareholder who is not a customer, potential customer, government entity, or civic group?

Accepted Answer

The answer of What is the tax treatment for a...

Question 9

The City of Springfield donates land worth $250,000 to Deuce Corporation to induce it to locate in Springfield and provide 1,000 jobs for its citizens. How much gross income must Deuce Corporation recognize because of the land contribution, and what is the land's basis to Deuce Corporation?

Accepted Answer

The answer of The City of Springfield donates land worth...

Question 10

The City of Providence owns 100% of Triple A Baseball Corporation, a minor league baseball team in their community. The City donates land worth $125,000 to Triple A Corporation so the major league team will not revoke the City's minor league franchise. How much gross income must Triple A Corporation recognize because of the land contribution, and what is the land's basis to Triple A Corporation?

Accepted Answer

The answer of The City of Providence owns 100% of...

Question 11

Several years ago, John acquired 200 shares of Jersey Corporation stock directly from the corporation for $150,000 in cash. This year, he sold the stock to Bill for $85,000. What tax issues should John consider with respect to the stock sale?

Accepted Answer

The answer of Several years ago, John acquired 200 shares...

Question 12

Discuss the tax planning opportunities that are available in forming a corporation when one of the parties owns property that has a high basis and a low FMV.

Accepted Answer

The answer of Discuss the tax planning opportunities that are...

Question 13

Severs Corporation employs Susan as an Advertising Director. Her annual compensation from Severs Corporation is $100,000. Severs Corporation is experiencing financial problems, and Susan lends the corporation $50,000 in 2008 in an attempt to help it through its financial difficulties. Severs Corporation subsequently declares bankruptcy, and in 2010 Susan and the other creditors receive 10 cents on each dollar they are owed. What is the amount and character of Susan's loss?

Accepted Answer

The answer of Severs Corporation employs Susan as an Advertising...

Question 14

Mr. Big, a nonshareholder, who is not a customer, potential customer, governmental entity, or civic group, contributes $60,000 cash and land worth $100,000 to induce Carrie Corporation to relocate to his municipality. Carrie Corporation spent $50,000 of the cash within the first 12 months of his contribution to purchase machinery. The contribution results in

Accepted Answer

The answer of Mr. Big, a nonshareholder, who is not...

Question 15

Gene purchased land five years ago as an investment. The land cost him $200,000 and is now worth $530,000. Gene plans to transfer the land to Dee Corporation, which will subdivide the land and sell individual parcels. Dee Corporation's profits on the land will be ordinary income. What are the tax consequences of the asset transfer and land sales if Gene contributes the land to Dee Corporation in exchange for all of its stock? What alternative methods can be used to structure the transaction to achieve better tax consequences?

Accepted Answer

The answer of Gene purchased land five years ago as...

Question 16

Sarah has advanced money to her corporation. What tax issues should she consider with respect to this money?

Accepted Answer

The answer of Sarah has advanced money to her corporation....

Question 17

Any losses on the sale of Section 1244 stock are ordinary.

Accepted Answer

The answer of Any losses on the sale of Section...

Question 18

Nikki exchanges property having a $20,000 adjusted basis and a $16,000 FMV for 100 shares of Niftik stock in a transaction qualifying under Sec. 351. The stock qualifies as Sec. 1244 stock. Nikki's basis in her Niftik stock is $20,000. If Nikki sells her stock for $5,000, what is the amount and character of her loss?

Accepted Answer

The answer of Nikki exchanges property having a $20,000 adjusted...

Question 19

Will, a shareholder in Wiley Corporation, lent money to the corporation. The corporation is unable to repay him. What tax issues should Will consider with respect to the loan?

Accepted Answer

The answer of Will, a shareholder in Wiley Corporation, lent...

Question 20

Darnell, who is single, exchanges property having a $60,000 adjusted basis and a $50,000 FMV for 1,000 shares of Fox Corporation stock in a transaction qualifying under Sec. 351. The stock qualifies as Sec. 1244 stock. If Darnell sells his stock for $30,000, what is the amount and character of his recognized gain or loss?

Accepted Answer

The answer of Darnell, who is single, exchanges property having...

Quiz 2: Corporate Formations and Capital Structure