Question

e0. Which of the following is NOT taken into account when determining if gain or loss should be recognized by the shareholder on the transfer of property to a corporation in exchange for a controlling interest in stock of the corporation.

a) Ownership of a least 80% of all stock
b) Receiving money in addition to stock
c) Fair market value of property transferred to corporation by shareholder d) Mortgage on shareholder’s property assumed by corporation.
e) None of the above.

Indicate whether each of the following is either: A True. B False

41. An S Corporation is a taxpaying entity.
42. If shareholders elect S Corporation status, the corporation generally pays no tax.
43. Stock received by a transferor in exchange for services does not count in determining
whether the 80% control test has been met.
44. Under Sec. 351, no gain or loss is recognized by those who exchange property solely for
stock of the recipient corporation.
45. When boot is received by a taxpayer transferring assets in a Sec. 351 exchange, gain must be
recognized to the extent of the smaller of the realized gain or the FMV of the boot received.

Answer 1

Answer:-

(C) Fair market value of property transfered to corporation by share holder.

Explanation:-

These are taken into account:-

●Ownership of at least 80 percent of the total combined voting power of all stock entitled to vote.
● Ownership of at least 80 percent of the total number of shares of all other classes of stock.
● Receipt of money in addition to stock.
● Mortgage on property assumed by the corporation.

Answer(41): False.

S corporation is a Tax accounting entity not a Tax paying entity. S corporation does not pay direct income tax rather it passes through the shareholders who pay taxes on their profits. So S corporation is a Pass through entity.

Answer(42): True.

If a corporation is S corporation, it does not pay tax, its shareholders pay tax on profits and other income. S corporation does not pay tax twice like C corporation, S corporation does not pay Federal tax. Shareholders of S corporation pay tax on income, profit and other ganis.

Answer(43): False.

It does not count 80%, it counts 10% test is met. Stocks received by a transferor is counted to determine whether or not the control requirement is met.

Answer(44): True.

As per code section 351 (a) tells one or more person, solely in exchange for stock in such corporation, no gain or loss will be recognized.

Answer(45): True.

When boot is received by a taxpayer transferring assets in a Sec. 351 exchange, gain must be recognized to the extent of the smaller of the realized gain or the FMV of the boot received. This transfer is made to avoid tax (Sec. 357 (b)(1)(A).