Law question data bank

| March 14, 2016

Question
369. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que69
Thomas transfers cash of $160,000 to Grouse Corporation, a newly formed corporation, for 100% of the stock in Grouse worth $90,000 and debt in the amount of $70,000, payable in equal annual installments of $7,000 plus interest at the rate of 5% per annum. In the first year of operation, Grouse has net taxable income of $40,000. If Grouse pays Thomas interest of $3,500 and $7,000 principal payment on the note:

a. Thomas has dividend income of $10,500.
b. Grouse Corporation does not have a tax deduction with respect to the payment.
c. Grouse Corporation has an interest expense deduction of $3,500.
d. Thomas has dividend income of $7,000.
e. None of the above.

370. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que70
Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel. In the first year of operation, Camel has net taxable income of $70,000. If Camel distributes $50,000 to Adam:

a. Adam has taxable income of $50,000.
b. Camel Corporation has a tax deduction of $50,000.
c. Adam has no taxable income from the distribution.
d. Camel Corporation reduces its basis in the land to $150,000.
e. None of the above.

371. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que71
Wren Corporation (a minority shareholder in Lark Corporation) has made loans to Lark Corporation that become worthless in the current year.

a. Wren Corporation is not permitted a deduction for the loans.
b. The loans result in a nonbusiness bad debt deduction to Wren Corporation.
c. The loans provide Wren Corporation with a business bad debt deduction.
d. Wren claims a capital loss due to the uncollectible loans.
e. None of the above.

372. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que72
Pat, Maria, and Lynn are equal shareholders in Lime Corporation. Lime has assets with a basis of $150,000 and a fair market value of $1,200,000. In the current year, Pat lends Lime Corporation $200,000 and Maria lends it $150,000. Both notes bear interest at the rate of 8% per annum. Lime Corporation has no other debt outstanding. Lynn leases machinery to Lime Corporation for an annual rental of $16,000.

a. The IRS will be successful in reclassifying both loans as equity.
b. The IRS will be successful in reclassifying the $200,000 loan as equity.
c. Lime Corporation cannot support its debt-equity ratio.
d. Because the loans are not pro rata and Lime Corporation can support its debt-equity ratio, the loans should not be reclassified as equity.
e. None of the above.

373. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que73
When Pheasant Corporation was formed under § 351, Kristen transferred property (basis of $26,000 and fair market value of $22,500) for § 1244 stock. Kristen’s basis in the Pheasant stock is $26,000. Three years later, Pheasant Corporation goes bankrupt and its stock becomes worthless. Kristen, who is single, owned the stock as an investment. Kristen’s loss is:

a. $26,000 capital.
b. $22,500 ordinary and $3,500 capital.
c. $3,500 ordinary and $22,500 capital.
d. $26,000 ordinary.
e. None of the above.

374. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que74
Shawn transfers property (basis of $40,000 and fair market value of $35,000) to Condor Corporation in exchange for § 1244 stock. The transfer qualifies as a nontaxable exchange under § 351; therefore, Shawn’s basis in the Condor stock is $40,000. Five years later, Shawn sells the Condor stock for $25,000. With respect to the sale, Shawn has:

a. An ordinary loss of $15,000.
b. An ordinary loss of $10,000 and a capital loss of $5,000.
c. A capital loss of $15,000.
d. A capital loss of $10,000 and an ordinary loss of $5,000.
e. None of the above.

375. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que75
Penny, Miesha, and Sabrina transfer property to Owl Corporation for 75% of its stock. Nancy, their attorney, receives 25% of the stock in Owl for legal services rendered in incorporating the business. What are the tax consequences of these transactions? How should this transaction have been handled?

376. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que76
Julio exchanges property, basis of $100,000 and fair market value of $1.8 million, for 75% of the stock of Lime Corporation. The other 25% is owned by Gloria who acquired it several years ago. What are the tax consequences to the parties involved?

377. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que77
Robert organized Redbird Corporation 10 years ago by contributing property worth $3 million, basis of $550,000, for 2,000 shares of stock in Redbird, representing 100% of the stock in the corporation. Robert later gave each of his children, Brittany and Julie, 600 shares of stock in Redbird Corporation. In the current year, Robert transfers property worth $700,000, basis of $150,000, to Redbird for 1,000 shares in the corporation. What gain, if any, will Robert recognize on the transfer?

378. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que78
Ashley, a 70% shareholder of Wren Corporation, transfers property with a basis of $250,000 and a fair market value of $900,000 to Wren Corporation for additional stock. Ashley owns 78% of Wren after the transfer. Two other shareholders in Wren transfer a nominal amount of property to Wren along with Ashley’s transfer so that Ashley and the two shareholders own 90% of the Wren stock after the transfer. Does Ashley have taxable gain on the transfer?

379. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que79
Trudy forms Oak Corporation by transferring land with a basis of $150,000 (fair market value of $800,000), subject to a mortgage of $450,000. Two weeks prior to incorporating Oak, Trudy borrows $10,000 for personal purposes and gives the lender a second mortgage on the land. Oak Corporation issues stock worth $340,000 to Trudy and assumes the two mortgages on the land. What are the tax consequences to Trudy and to Oak Corporation?

380. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que80
Nancy, Guy, and Rod form Goldfinch Corporation with the following consideration.

Adjusted

Fair Market

Basis

Value

From Nancy—

Cash

$120,000

$120,000

Inventory

90,000

130,000

From Guy—

Land and building

120,000

250,000

From Rod—

Legal and accounting services to incorporate

–0–

50,000

Goldfinch issues its 500 shares of stock as follows: 250 to Nancy, 200 to Guy, and 50 to Rod. In addition, Guy gets $50,000 in cash.

a.

Does Nancy, Guy, or Rod recognize gain (or income)?

b.

What basis does Guy have in the Goldfinch stock?

c.

What basis does Goldfinch Corporation have in the inventory? In the land and building?

d.

What basis does Rod have in the Goldfinch stock?

381. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que81
Sean, a sole proprietor, is engaged in a service business and uses the cash basis of accounting. In the current year, Sean incorporates his business by forming Aqua Corporation. In exchange for all of its stock, Aqua receives: assets (basis of $400,000 and fair market value of $2 million), trade accounts payable of $110,000, and loan due to a bank of $390,000. The proceeds from the bank loan were used by Sean to provide operating funds for the business. Aqua Corporation assumes all of the liabilities transferred to it.

a.

Does Sean recognize any gain on the incorporation? Explain.

b.

What basis does Sean have in the Aqua stock?

c.

What basis does Aqua Corporation have in the assets it receives?

382. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que82
Barry and Irv form Swift Corporation. Barry transfers cash of $100,000 and equipment (basis of $300,000 and fair market value of $400,000) for 50% of Swift’s stock. Irv transfers land and building (basis of $510,000 and fair market value of $450,000) and agrees to manage the business for one year for the other 50% of Swift’s stock. The value of Irv’s services for one year is $50,000.

a.

What is Barry’s recognized gain? Basis in the Swift Corporation stock?

b.

What are the tax consequences to Irv?

c.

What are the tax consequences to Swift Corporation?

383. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que83
In order to encourage the development of its industrial park, Union County gives Darter Corporation land (fair market value of $800,000) and cash of $500,000. Within one year, Darter constructs a new plant at the site at a cost of $1,200,000.

a.

How much income, if any, must Darter Corporation recognize as a result of these transfers?

b.

What basis will Darter Corporation have in the land? In the plant?

384. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que84
Lark City donates land worth $300,000 and cash of $100,000 to Orange Corporation as an inducement to locate in the city. Four months later, Orange purchases additional land and a building at a cost of $500,000 and moves its operations to Lark City. Ann, the sole shareholder, contributes equipment (basis of $70,000 and fair market value of $200,000) to help Orange in its new operations. What are the tax consequences of these transfers to Orange Corporation?

385. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que85
Stock in Merlin Corporation is held equally by Jane, Eve, and Fred. Merlin seeks additional capital to buy a valuable tract of land that will cost $6,000,000. Jane, Eve, and Fred propose to loan Merlin $2,000,000 each, taking from Merlin a $2,000,000 ten-year note with interest payable annually at five points above the prime rate. Merlin Corporation has current taxable income of $7,000,000. How are the payments on the notes treated for tax purposes?

Order your essay today and save 20% with the discount code: ESSAYHELP
Order your essay today and save 20% with the discount code: ESSAYHELPOrder Now