Answer the given question below on given topic Corporate Formation, Reorganization, and Liquidation
Discussion Questions:
1. Discuss the difference between gain realization and gain recognition in a property transaction.
2. What information must a taxpayer gather to determine the amount realized in a property transaction?
3. Distinguish between exclusion and deferral as it relates to a property transaction.
4. Discuss how a taxpayer's tax basis in property received in a property transaction will be affected based on whether a property transaction results in gain exclusions or gain deferral.
5. What information must a taxpayer gather to determine the tax-adjusted basis of property exchanged in a property transaction?
6. Why does Congress allow tax deferral on the formation of a corporation?
7. List the key statutory requirements that must be met before a corporate formation is tax-deferred under §351.
8. What is the definition of control for purposes of §351? Why does Congress require the shareholders to control a corporation to receive tax deferral?
9. is a substituted basis as it relates to stock received in exchange for property in a §351 transaction? What is the purpose of attaching a substituted basis to stock received in a §351 transaction?
10. True or False? The receipt of boot by the shareholder in a §351 transaction causes the transaction to be fully taxable. Explain.
11. True or False? A corporation's assumption of shareholder liabilities will always constitute boot in a §351 transaction. Explain.
12. How does the tax treatment differ in cases where liabilities are assumed with a tax avoidance purpose versus where liabilities assumed exceed basis? When would this distinction cause a difference in the tax treatment of the transactions?
13. What is a carryover basis as it relates to property received by a corporation in a §351 transaction? What is the purpose of attaching a carryover basis to property received in a §351 transaction?
14. Under what circumstances does property received by a corporation in a §351 transaction not receive a carryover basis? What is the reason for this rule?
15. How does a corporation depreciate an asset received in a §351 transaction in which no gain or loss is recognized by the transferor of the property?
16. True or False? A shareholder receives the same tax consequences whether property is contributed to a corporation in a §351 transaction or as a capital contribution. Explain.
17. Why might a corporation prefer to characterize an instrument as debt rather than equity for tax purposes? Are the holders of the instrument indifferent as to its characterization for tax purposes?
18. Under what conditions is it advantageous for a shareholder to hold §1244 stock? Why did Congress bestow these tax benefits on holders of such stock?
19. Why does the acquiring corporation usually prefer to buy the target corporation's assets directly in an acquisition?
20. Why do the shareholders of the target corporation usually prefer to sell the stock of the target corporation to the acquiring corporation?
21. What is the Congressional purpose for allowing tax deferral on transactions that meet the definition of a corporate reorganization?
22. Why do publicly-traded corporations use a triangular form of Type A reorganization in acquiring other corporations?
23. What are the key differences in the tax law requirements that apply to forward versus reverse triangular mergers?
24. What are the key differences in the tax law requirements that apply to a Type A stock-for-assets acquisition versus a Type B stock-for-stock acquisition?
25. How does the form of a regular §338 election compare and contrast to a §338(h)(10) election?
26. What tax benefits does the buyer hope to obtain by making a §338 or §338(h)(10) election?
27. What is the difference between the inside tax basis and the outside tax basis that results from an acquisition? Why is the distinction important?
28. What is the presumption behind the continuity of ownership interest (COI) requirement in a tax-deferred acquisition? How do the target shareholders determine if COI is met in a Type A reorganization?
29. W Corporation will acquire all of the assets and liabilities of Z Corporation in a Type A merger, after which W Corporation will sell off all of its assets and liabilities and focus solely on Z Corporation's business. True or False? The transaction will be taxable because W Corporation fails the continuity of business enterprise test. Explain.
30. Compare how a shareholder computes her tax basis in stock received from the acquiring corporation in a straight Type A merger versus a Type B merger.
31. True or False? All shareholders receive the same tax treatment in a complete liquidation of a corporation. Explain.
32.True or False? A corporation recognizes all gains and losses on liquidating distributions of property to noncorporate shareholders. Explain.
33.Under what circumstances does a corporate shareholder receive tax deferral in a complete liquidation?
34.Under what circumstances will a liquidating corporation be allowed to recognize loss in a non-pro rata distribution?
35.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.
36. ] 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. 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. 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. 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?
Assume the corporation assumed a mortgage of $500,000 attached to the building and land. Assume the fair market value of the building is now $250,000 and the fair market value of the land is $530,000. The fair market value of the stock remains $300,000.
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?
The total tax basis of the three assets equals their carryover basis ($410,000) plus the gain recognized by Zhang on the exchange.
40 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?