Question 1

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

If the FMV on the date of contribution is lower than the shareholder's basis in the property, the corporation must use the FMV as the property's basis.

Question 2

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 business-related 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

B)
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Question 3

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

B) Rhett's recognized gain is the smaller of his realized gain of $90,000 [$230,000 - $140,000] or $20,000 of boot received [note of the Lady Corporation].
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Question 4

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...

Question 5

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

B)
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Question 6

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

B)
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Question 7

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 does allow deferral of gain or loss recognition because the assets have merely been transferred to a corporation controlled by the transferors.

Question 8

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

Sec. 357 provides for nonrecognition of gain for debt relief in a Sec. 351 transfer.

Question 9

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 is $240,000.What is the amount of the accumulated earnings tax?

Accepted Answer

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

Question 10

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 business-related 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

A)
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Question 11

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

If gain on the transfer of an asset is deferred under Sec. 351, so is the depreciation recapture.

Question 12

Johnson Corporation has $300,000 of AMTI before the exemption.What is the tax base for AMT?

Accepted Answer

The answer of Johnson Corporation has $300,000 of AMTI before...

Question 13

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

B)
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Question 14

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

Accepted Answer

Thin capitalization means that the corporation is primarily financed with debt.

Question 15

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

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

Question 16

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

A)
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Question 17

In the current year,Bosc Corporation has taxable income of $100,000,and its regular tax liability is $22,250.Bartlett's AMT adjustments other than ACE are $70,000,and it has $320,000 of adjusted current earnings.What is the amount of Bosc Corporation's AMT liability?

Accepted Answer

The answer of In the current year,Bosc Corporation has taxable...

Question 18

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

C) Bert's recognized gain is the smaller of his realized gain of $45,000 [$335,000 - $290,000] or $25,000 of boot received [note of the Shark Corporation].
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Question 19

A shareholder transfers a building subject to a mortgage in a Sec.351 transfer.The corporation assumes the mortgage,and no gain is recognized on the transfer under Sec.351.The transfer of the liabilities has no effect on the shareholder's stock basis.

Accepted Answer

The corporation's assumption of liabilities reduces the shareholder's basis in stock.

Question 20

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 transferor-shareholders must own at least 80% of the stock.

Quiz 16: Corporations