Question

 

23. Candace owns 100% of the stock of Tulip Corporation. In the current year Candace

transfers an installment obligation, tax basis of $30,000 and fair market value of $70,000

for additional stock in Tulip worth $70,000

aCandace recognizes no taxable gain on the transfer

bCandace has a taxable gain of $40,000

cCandace has a taxable gain of $70,000

dCandace has a basis of $70,000 in the additional stock she received in Tulip

Corporation

e None of the above

24.

Shaquille and Shayla form Orchid Corporation. Shaquille transfers properly (basis of

$140,000 and fair market value of $100,000) while Shayla transfers land (basis of

$50,000 and fair market value of $80,000) and $20,000 of cash. Each receives 50% of

Orchid's stock. As a result of these transfers:

a.. Shaquille has a recognized loss of $40,000, and Shayla has a recognized gain of

$30,000.

B Neither Shaquille nor Shayla has any recognized gain or loss.

C Shaquille has no recognized loss, but Shayla has a recognized gain of $30,000.

d. Orchid Corporation will have a basis in the land of $80,000.

e. None of the above.

Answer 1

Part 23

Option A

a. Candace recognizes no taxable gain on the transfer

Amount realized = FMV of stock of $70000 + $0 boot = $70000

Realized gain = Amount realized $70000 – adjusted basis in installment obligation $30000 = $40000

Recognized gain = $0 (because recognized gain is lesser of boot or realized gain and the boot of $0 is less than realized gain of $4000)

Part 24

Option B

B. Neither Shaquille nor Shayla has any recognized gain or loss.

For Orchid Corporation’s:

Fair market value of stock = Fair Market Value of Property transferred by Shaquille + Fair Market Value of Land transferred by Shayla + Cash

Fair market value of stock = 100000 + 80000 + 20000 = $200,000

Thus, each of them gets stock of $100,000

For Shaquille:

Realized Amount (Gain or Loss) = Fair Market Value of transferred Property + Invested Cash – Received Stock Value

Realized Amount (Gain or Loss) = 100000 + 0 – 100000

Realized Amount (Gain or Loss) = $0

For Shayla:

Realized Amount (Gain or Loss) = Fair Market Value of transferred Property + Invested Cash – Received Stock Value

Realized Amount (Gain or Loss) = 80000 + 20000 – 100000

Realized Amount (Gain or Loss) = $0