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Exam 4: Corporations: Organization and Capital Structure

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Question 51

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Tan Corporation desires to set up a manufacturing facility in the western part of the United States.After considerable negotiations with Butte,Montana,Tan accepts the following offer: land (fair market value of $4.5 million)and cash of $1.5 million.

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Question 52

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Nancy,Guy,and Rod form Goldfinch Corporation with the following consideration. 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.

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Question 53

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Karen formed Grebe Corporation with an investment of $100,000 cash,for which she received $10,000 in stock and $90,000 in 9% interest-bearing bonds maturing in ten years.A few years later Karen loaned Grebe an additional $40,000 on open account.Grebe becomes insolvent in the current year and is adjudged bankrupt.Karen was the president of Grebe Corporation and was paid an annual salary of $30,000 for the past three years.Karen has no other employment.How will Karen treat her losses for tax purposes?

The transfer of an installment obligation in a transaction qualifying under § 351 is a disposition of the obligation that causes gain to be recognized by the transferor.

When consideration is transferred to a corporation in return for stock,the definition of "property" is important because tax deferral treatment of § 351 is available only to taxpayers who transfer property.

In order to encourage the development of an industrial park,a county donates land to Ecru Corporation.The donation does not result in gross income to Ecru.

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?

A shareholder contributes land to his wholly owned corporation but receives no stock in return.The corporation has a zero basis in the land.

The receipt of nonqualified preferred stock in exchange for the transfer of appreciated property to a controlled corporation results in recognition of gain to the transferor.

Ira,a calendar year taxpayer,purchases as an investment stock in Redbird Corporation on November 2,2009.On February 1,2010,Redbird Corporation is declared bankrupt,and Ira's stock becomes worthless.Presuming § 1244 (stock in a small business corporation)does not apply,Ira has a short-term capital loss for 2010.

Kevin and Nicole form Indigo Corporation with the following transfers: inventory from Kevin (basis of $360,000 and fair market value of $400,000) and improved real estate from Nicole (basis of $320,000 and fair market value of $375,000) .Nicole,an accountant,agrees to contribute her services (worth $25,000) in organizing Indigo.The corporation's stock is distributed equally to Kevin and Nicole.As a result of these transfers:

Four years ago,Don,a single taxpayer,acquired stock in a corporation that qualified as a small business corporation under § 1244,at a cost of $60,000.Don wants to give his son,Ron,$20,000 to help finance Ron's college education.The stock is currently worth $20,000.Don is considering selling the stock in the current year for $20,000 and giving the cash to Ron.As an alternative,Don could give the stock to Ron and let Ron sell it for $20,000.Which alternative should Don choose?

Kim owns 100% of the stock of Cardinal Corporation.In the current year Kim transfers an installment obligation,tax basis of $30,000 and fair market value of $200,000,for additional stock in Cardinal worth $200,000.