Penny, Miesha, and Sabrina transfer property (FMV 150,000, adjusted basis $90,000) to Owl Corporation for 75%...

a. Apply section 351 to the transaction above.

b. What are the tax consequences for the shareholders (e.g., recognized gain, loss, income) as a result of the transfer?

c. How should this transaction have been handled? Why?

Solutions

Expert Solution

ANSWER

Part B

Nancy offers legal service, did not contribute property, and in exchange gets 25% stock.

The chance of section 351 treatment is lost (as all members do not transfers the property), whereby no gain or loss is recognized in exchange.

Because other members ho transferred property will not get immediate control after the exchange. It is taxable to all involved persons.

Gain recognized by Penny, Miesha, and Sabrina = $0 (gain recognized is loer of gain realized or boot received; gain realized $60000 (FMV - adjusted basis = 150000-90000) or boot received $0)

Income for Nancy = $50000 (stock received are like a compensation for legal service rendered)

Part C

Nancy should have transferred some property along with the rendering services. In that case he would have been treated as the member of the transferring group.

They would have been allowed section 351 treatment, whereby no gain or loss is recognized. However, the value of the stock issued for services is taxed in all circumstances.

---------------------------------------------------------------------

DEAR STUDENT,
If you have any query or any Explanation please ask me in the comment box, i am here to helps you.please give me positive rating.

*****************THANK YOU**************

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Penny, Miesha, and Sabrina transfer property (FMV 150,000, adjusted basis $90,000) to Owl Corporation for 75%...

Penny, Miesha, and Sabrina transfer property (FMV 150,000, adjusted basis $90,000) to Owl Corporation for 75% of its stock. Nancy, their attorney, receives 25% of the stock in Owl worth $50,000) for legal services rendered in incorporating the business. Penny, Miesha, and Sabrina wish to minimize any tax liability resulting from the transfer. Penny, Miesha, and Sabrina transfer property (FMV 150,000, adjusted basis $90,000) to Owl Corporation for 75% of its stock. Nancy, their attorney, receives 25% of the stock...

TJ Magnasen contributed assets with a $200,000 adjusted basis and a $525,000 FMV to Adelante Corporation...

TJ Magnasen contributed assets with a $200,000 adjusted basis and a $525,000 FMV to Adelante Corporation in exchange for all of its stock. The corporation conducted operations for five years and was liquidated. TJ received the following in a liquidating distribution: $615,000 cash (less federal income taxes of 21% owed on the liquidation by the corporation) The assets that he had originally contributed, which now have a $150,000 adjusted basis and a $615,000 FMV. a) What are the tax consequences...

John and Lydia form Fusco Inc., a C-Corporation. Lydia transfers land (FMV $100,000 and adjusted basis...

John and Lydia form Fusco Inc., a C-Corporation. Lydia transfers land (FMV $100,000 and adjusted basis of 100,000) and agrees to provide legal services to draft the organization documents worth $190,000 for 50% of the stock in the corporation. John transfers equipment (FMV $310,000 adjusted basis of $75,000 for 50% of the stock in the corporation and $20,000 cash. The value of the stock received is $290,000 for each John and Lydia. (8 points) a. Will the transfer qualify under...

How does the transfer of mortgage property to a controlled corporation affect the transferor-shareholder’s basis in...

How does the transfer of mortgage property to a controlled corporation affect the transferor-shareholder’s basis in stock received? Assume that no gain is recognize on the transfer.

. In 20X6, Wood’s residence had an adjusted basis of $150,000 and it was destroyed by...

. In 20X6, Wood’s residence had an adjusted basis of $150,000 and it was destroyed by a tornado. An appraiser valued the decline in market value at $175,000. Later that same year, Wood received $130,000 from his insurance company for the property loss and did not elect to deduct the casualty loss in an earlier year. Wood’s 20X6 adjusted gross income was $60,000 and he did not have any casualty gains. What total amount can Wood deduct as a 20X6...

A and B form the equal AB partnership. A contributes property (FMV = $200,000, basis =...

A and B form the equal AB partnership. A contributes property (FMV = $200,000, basis = $100,000) and B contributes $200,000 cash. The property is depreciated straight line over a 10 year life for both book and tax purposes. The partnership also has other property (FMV = $280,000, basis = $280,000) that is depreciated straight line over 10 years. (1) Under Code Sec. 704(c), how much of the tax depreciation of the contributed property by A in the first year...

1.The equal XYZ Partnership has the following balance sheets: Basis FMV Property A $39,000 $54,000 Property...

1.The equal XYZ Partnership has the following balance sheets: Basis FMV Property A $39,000 $54,000 Property B $60,000 $42,000 Inventory A $3,000 $15,000 Inventory B $15,000 $12,000 $117,000 $123,000 Capital, X $35,000 $41,000 Capital, Y $41,000 $41,000 Capital, Z $41,000 $41,000 $117,000 $123,000 XYZ has a Code Section 754 election in effect, and X sells her interest to W for $41,000 cash. The two Properties are both capital assets. Inventory A was contributed by X at a time when its...

Paul owns undeveloped land (a capital asset, FMV $100,000 and adjusted basis $40,000) and transfers the...

Paul owns undeveloped land (a capital asset, FMV $100,000 and adjusted basis $40,000) and transfers the land to the newly created Three Dog Corporation in exchange for the alternative consideration listed below. Assume there is no Original Issue Discount (OID) in any debt, there is not any non-qualified preferred stock and Paul is the sole shareholder. What is the income recognition, if any, and basis consequences to Paul and Three Dog Corporation on the different exchanges listed below? a. 20...

Tamika owned 200 shares of Gold Corporation with a basis of $12,000 and a FMV of...

Tamika owned 200 shares of Gold Corporation with a basis of $12,000 and a FMV of $24,000. Tamika received 20 stock rights as a nontaxable distribution with a total FMV of $8,000. Tamika sold the stock rights for $4,000. Tamika's gain or loss on the sale was (LABEL AND SHOW ALL WORK WITH CALCULATIONS) A) $1,000. B) $3,000. C) $4,000. D) ($4,000).

Emily spent $135,000 to rehabilitate a certified historic building (adjusted basis of $90,000) that originally

Emily spent $135,000 to rehabilitate a certified historic building (adjusted basis of $90,000) that originally had been placed in service in 1935. Compute Emily’s credit for rehabilitation expenditures.

Subjects