Question 1

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

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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

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Question 3

Corkie Corporation distributes $80,000 cash along with land having a $60,000 adjusted basis and a $40,000 FMV to its shareholder Josh. What are the tax consequences to Corkie Corporation?

Accepted Answer

The distribution of $80,000 cash along with land having a $60,000 adjusted basis and a $40,000 FMV will result in a loss realized of $20,000 ($60,000 - $40,000). However, this loss is not recognized for tax purposes since the property distributed is not considered a capital asset in the hands of the distributing corporation. Therefore, the correct answer is option B, a loss realized but not recognized.

Question 4

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 to TJ Corporation is equal to its FMV at the time of transfer, which is $930,000. Therefore, the total basis of TJ Corporation after formation is $930,000 cash + $930,000 equipment = $1,860,000. Since each shareholder owns 50% of the corporation, their basis in their shares is $930,000.

Question 5

A corporation distributes land worth $200,000 to its sole shareholder. The corporation had purchased the land several years ago for $120,000. The corporation has over $1 million of E&P. How much income will the corporation and the shareholder recognize?

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Question 6

A calendar-year corporation has a $75,000 current E&P amount, and a $25,000 positive accumulated E&P balance at the beginning of the year. Shareholders of the corporation have a total basis in outstanding shares of $40,000. The corporation pays a $120,000 distribution to the shareholders. The tax results to the shareholders will be

Accepted Answer

The distribution of $120,000 exceeds the corporation's current E&P of $75,000, so $75,000 of the distribution will be treated as a dividend to the shareholders. The remaining $45,000 (the excess of the distribution over current E&P) will be treated as a return of the shareholders' basis in the stock. Since the shareholders' total basis in outstanding shares is $40,000, they will only be able to recover $40,000 tax-free as a return of capital. The remaining $5,000 ($45,000 - $40,000) will be treated as a capital gain. Therefore, the tax results to the shareholders will be a dividend income of $75,000 and a tax-free return of capital of $40,000, totaling $115,000. The remaining $5,000 will be treated as a capital gain.

Question 7

Ron 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 the adjusted basis of the stock received?

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Question 8

A calendar-year corporation has a $15,000 current E&P deficit and a $40,000 positive accumulated E&P balance. Also assume that shareholders of the corporation have a total basis in outstanding shares of $30,000. A $75,000 distribution is made to the shareholders on the last day of the year. The tax results to the shareholders will be

Accepted Answer

The distribution is first applied against the accumulated E&P, resulting in $25,000 of dividend income ($40,000 accumulated E&P - $15,000 current E&P deficit). The next $30,000 is a return of capital, reducing the shareholders' basis to zero. The remaining $20,000 is a capital gain.

Question 9

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 transferred, which is $425,000, minus the amount of the note received, which is $15,000, for a total basis of $410,000.

Question 10

Dixie Corporation distributes $31,000 to its sole shareholder, Sally. At the time of the distribution, Dixie's E & P is $25,000 and Sally's basis in her Dixie stock is $10,000. Sally's basis in her Dixie stock after the distribution is

Accepted Answer

The distribution of $31,000 is greater than Dixie's E & P of $25,000, so $25,000 of the distribution will be treated as a dividend and $6,000 will be treated as a return of Sally's basis. Therefore, Sally's basis in her Dixie stock after the distribution will be $10,000 - $6,000 = $4,000.

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

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Question 12

Greg Corporation, an accrual method taxpayer, had accumulated earnings and profits of $300,000 as of December 31, last year. For its current tax year, Greg's books and records reflect the following:  Based on the above, what is the amount of Greg Corporation's current earnings and profits for this year?

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Question 13

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

When a transfer of property to a corporation meets the requirements of Sec. 351, no gain or loss is recognized by the transferor. However, the liabilities assumed by the corporation reduce the amount realized by the transferor. In this case, Bob transfers assets with a total value of $100,000 and $70,000 of liabilities, making his amount realized $30,000 ($100,000 - $70,000). Since Bob's basis in the assets transferred was $60,000, he has a realized loss of $30,000. However, this loss is not recognized due to theSec. 351 nonrecognition provision, so the answer is B) $0 gain recognized.

Question 14

Blue Corporation distributes land and building having a $70,000 adjusted basis and a $200,000 FMV to its sole shareholder, Marina. Blue has current and accumulated E & P exceeding $100,000. The property is subject to a $120,000 mortgage, which Marina assumes. What is the amount of the taxable dividend received by Marina?

Accepted Answer

The FMV of the property is $200,000, but there is a mortgage of $120,000 that Marina is assuming. Therefore, the net value of the property received by Marina is $80,000 ($200,000 - $120,000). Since the property has a $70,000 adjusted basis, the taxable dividend received by Marina is $10,000 ($80,000 - $70,000). Marina has current and accumulated E&P exceeding $100,000, so there are no issues with the corporation's ability to pay a dividend.

Question 15

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 doesn't recognize any gain or loss, and the transferee corporation takes a carryover basis in the transferred property equal to the transferor's adjusted basis. Therefore, the corporation's adjusted basis in the land is $95,000 (the transferor's adjusted basis). The fact that the corporation assumes the mortgage doesn't affect the adjusted basis of the property.

Question 16

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

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Question 17

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 equal to the amount realized minus the adjusted basis. The amount realized is the value of the stock and the note that he received, which is $210,000 + $20,000 = $230,000. The adjusted basis is $140,000. Therefore, the recognized gain is $230,000 - $140,000 = $90,000. However, since he only received a note worth $20,000, he will only recognize a gain of $20,000.

Question 18

John transfers assets with a $200,000 FMV (basis $160,000)and $170,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $130,000. The corporation assumes the $170,000 mortgage. The transfer qualifies under Sec. 351. What is the corporation's basis in the property?

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Question 19

Total Corporation has earned $75,000 current E&P and has an accumulated E&P deficit from prior year of $25,000. The corporation pays a $100,000 distribution to shareholders. Shareholders of the corporation have a total stock basis of $40,000. The tax results of the distributions to the shareholders will be

Accepted Answer

A)A distribution is deemed made first out of current E&P,to the extent of current E&P even when there is an accumulated deficit.After current E&P is exhausted,the distribution will come from stock basis if there is an accumulated E&P deficit.

Question 20

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

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Quiz 16: Corporations

Corkie Corporation distributes $80,000 cash along with land having a $60,000 adjusted basis and a $40,000 FMV to its shareholder Josh. What are the tax consequences to Corkie Corporation?

A corporation distributes land worth $200,000 to its sole shareholder. The corporation had purchased the land several years ago for $120,000. The corporation has over $1 million of E&P. How much income will the corporation and the shareholder recognize?

Dixie Corporation distributes $31,000 to its sole shareholder, Sally. At the time of the distribution, Dixie's E & P is $25,000 and Sally's basis in her Dixie stock is $10,000. Sally's basis in her Dixie stock after the distribution is