31. [LO 5] True or False? All shareholders receive the same tax treatment in a complete liquidation of a corporation. Explain.
32. [LO 5] True or False? A corporation recognizes all gains and losses on liquidating distributions of property to noncorporate shareholders. Explain.
33. [LO 5] Under what circumstances does a corporate shareholder receive tax deferral in a complete liquidation?
34. [LO 5] Under what circumstances will a liquidating corporation be allowed to recognize loss in a non-pro rata distribution?
35. [LO 5] Compare and contrast the built-in loss duplication rule as it relates to §351 with the built-in loss disallowance rule as it applies to a complete liquidation.
Problems
36. [LO 2] Ramon incorporated his sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases.
FMV Tax-Adjusted Basis
Inventory $ 10,000 $ 4,000
Building 50,000 30,000
Land 100,000 50,000
Total $ 160,000 $ 84,000
The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Ramon.
a. What amount of gain or loss does Ramon realize on the transfer of the property to his corporation?
b. What amount of gain or loss does Ramon recognize on the transfer of the property to his corporation?.
c. What is Ramon's basis in the stock he receives in his corporation?
37. [LO 2] Carla incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases.
FMV Tax-Adjusted Basis
Inventory $ 20,000 $ 10,000
Building 150,000 100,000
Land 250,000 300,000
Total $ 420,000 $ 410,000
The corporation also assumed a mortgage of $120,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $300,000.
a. What amount of gain or loss does Carla realize on the transfer of the property to his corporation?
b. What amount of gain or loss does Carla recognize on the transfer of the property to her corporation?
c. What is Carla's basis in the stock she receives in his corporation?
d. {planning} Would you advise Carla to transfer the building and land to the corporation? What tax benefits might she and the corporation receive if she kept the building and land and leased it to the corporation?
38. [LO 2] Ivan incorporated his sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases.
FMV Tax-Adjusted Basis
Inventory $ 10,000 $ 15,000
Building 50,000 40,000
Land 60,000 30,000
Total $ 120,000 $ 85,000
The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Ivan. The transaction met the requirements to be tax-deferred under §351.
a. What amount of gain or loss does Ivan realize on the transfer of the property to his corporation?
b. What amount of gain or loss does Ivan recognize on the transfer of the property to her corporation?
c. What is Ivan's basis in the stock he receives in his corporation?
d. What is the corporation's tax-adjusted basis in each of the assets received in the exchange?
e. Would the stock held by Ivan qualify as §1244 stock? Why would this fact be important if he sold his stock at a loss at some future date?
39. [LO 2] Zhang incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases.
FMV Tax-Adjusted Basis
Inventory $ 20,000 $ 10,000
Building 150,000 100,000
Land 230,000 300,000
Total $ 400,000 $ 410,000
The corporation also assumed a mortgage of $100,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $300,000. The transaction met the requirements to be tax-deferred under §351.
a. What amount of gain or loss does Zhang realize on the transfer of the property to her corporation?
b. What amount of gain or loss does Zhang recognize on the transfer of the property to her corporation?
c. What is Zhang's tax basis in the stock she receives in the exchange?
d. What is the corporation's tax-adjusted basis in each of the assets received in the exchange?
e. How much, if any, gain or loss does Zhang recognize on the exchange assuming the revised facts?
f. What is Zhang's tax basis in the stock she receives in the exchange?
g. What is the corporation's tax-adjusted basis in each of the assets received in the exchange?
40. [LO 2] Sam and Devon agree to go into business together selling college-licensed clothing. According to the agreement, Sam will contribute inventory valued at $100,000 in return for 80 percent of the stock in the corporation. Sam's tax basis in the inventory is $60,000. Devon will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualified as organizational expenditures). The accounting services are valued at $25,000.
a. What amount of gain or loss does Sam realize on the formation of the corporation? What amount, if any, does he recognize? b. What is Sam's tax basis in the stock he receives in return for his contribution of property to the corporation?
c. What amount of income, gain or loss does Devon realize on the formation of the corporation? What amount, if any, does he recognize?
d. What is Devon's tax basis in the stock he receives in return for his contribution of services to the corporation?Assume Devon received 25 percent of the stock in the corporation in return for his services.
e. What amount of gain or loss does Sam recognize on the formation of the corporation?
f. What is Sam's tax basis in the stock he receives in return for his contribution of property to the corporation?
g. What amount of income, gain or loss does Devon recognize on the formation of the corporation?
h. What is Devon's tax basis in the stock he receives in return for his contribution of services to the corporation?