Question

I wanted answers with the diagram. Thank you!

1. Ann transferred land worth $300,000, with a tax basis of $100,000, to Brown Corporation, an existing entity, for 100 shares of its stock. Brown Corporation has two other shareholders, Bill and Bob, each of whom holds 100 shares. What are the income tax consequences to Ann with respect to the transfer?

2.In order to induce Yellow Corporation to build a new manufacturing facility in Knoxville, Tennessee, the city donates fair market value of $500,000) and cash of $200,000 to the corporation. Several months after the donation, Yellow Corporation spends $800,000 (which includes the $200,000 received from Knoxville) on the construction of a new plant Indicated on the donated land. What are the income tax consequences to Yellow Corporation with regard to the donation of land and subsequent construction of a new plant?

Answer 1

ANSWER 1:- Here the answer is

Ann has a basis of $200,000 in her shares in Brown Corporation.

REASON: Because the transferdoes not qualify under $351 as Ann has only a 1/3 interest in Brown Corporation.The requirement of $351 apply to transfer to an existing corporation,as well as to a newly formed corporation.

CONSEQUENCES:.Any securities held by a Foreign institutional investor which has invested in such scurities in accordance with the regulations made under the Securities and Exchange Board Of India Act,1992 will always be treated as capital asset,hence such securities cannot be treated as stock-in-trade..The property being capital asset may or may not be connected with the business or profession of the taxpayer

ANSWER 2:- The income tax consequences to yellow Corporation with regard to the donation of land and subsequent construction of a new plant shows that any kind of profit or gain arising from transfer of a capital asset during the year is charged to tax under the head ''Capital Gains''.

1.Any kind of property held by an assesse,whether or not connected with business or profession of the assesse.

2.Any securities held by a FII which has invested in such securities in accordance with the regulations made under the SEBI ACT 1992.

3.The property being capital asset may or may not be connected with the business or profession of the taxpayer.E.G Bus used to carry passengers by a person engaged in the business of passengers transport will be his Capital asset.

4.Any securities held by a Foreign institutional investor which has invested in such scurities in accordance with the regulations made under the Securities and Exchange Board Of India Act,1992 will always be treated as capital asset,hence such securities cannot be treated as stock-in-trade.