1. Fred and Steve (father and son) organize a corporation with 100 Shares of common stock to which Fred transfers property worth $80,000 in exchange for 70 shares of stock, and Steven transfers property worth $20,000 in exchange for 30 shares of stock.
a. Does Code Sec. 351 apply to the transfers by Fred and Steve?
b. What additional problems are there?
2. Diamond Corporation was organized in 2012 and has outstanding 100 shares of common stock all of which are held by Gemworks Elmer Elkins owns property with a basis of $10,000 and a fair market value of $18,000. Elmer also rendered services valued at $2,000 to Diamond Corporation. In 2015, Diamond Corporation issued 400 shares of its common stock (with a fair market value of $20,000) to Elmer in exchange for his property and as compensation for the services Elmer has rendered.
a. Does Code Sec. 352 apply to Elmer
b. How much income must Elmer report?
c. What is Elmer's basis for the Diamond Corporation stock?
d. What is the basis of the property to Diamond Corporation?
3. Kathleen Korren transfers to her controlled corporation property with an adjusted basis of $10,000 in exchange for stock of the corporation with a fair market value of $8,000, $3,000 cash, and the assumption by the corporation of indebtedness of Kathleen amounting to $4,000.
a. What is Kathleen's realized gain?
b. What is Kathleen's recognized gain?
c. What is the corporation's basis for the property received?
d. What is Kathleen's basis for her stock
4. Ben Baxter transfers properties X and Y to his controlled corporation. The corporation issues common stock worth $30,000 and assumes the liability on property Y.
(Inventory) (Capital Asset) Property X Y FMV $30,000 $30,000 Adj. Basis 10,000 10,000 Liability 0 30,000
a. How much (and what type) gain is recognized by Ben?
b. If there is no business purpose for having the corporation assume the liability, what amount of gain will Ben recognize?
5. Elwood Emerson transferred a building having a fair market value of $200,000 and an adjusted basis of $1215,000 to his controlled corporation. In return Elwood received common stock worth $80,000, a 10-year debenture worth $20,000, a two-year note worth $10,000, $5,000 cash and the corporation assumed the mortgage of $85,000 on the building.
a. How much gain is realized by Elwood?
b. How much (and what type) gain is recognized by Elwood?
c. What is the corporation's basis for the building?
d. What is Elwood's basis for the note, debenture, and stock received.
6. Norman Nager transfers assets to a corporation that is wholly owned by him. In exchange for the assets, Norman received short-term notes with a fair market value of $64,000 and stock with a fair market value of $136,000. The assets transferred to the corporation are as follows:
Asset Adjusted Basis at Transfer Depreciation Recapture Potential Fair Market Value at Transfer Land (Sec. 1231 asset) $50,000 $0 $25,000 Building (Sec. 1231 asset) 50,000 15,000 75,000 Machinery 30,000 25,000 25,000 Inventory 70,000 9 75,000 $200,000 $40,000 $200,000
a. How much (and what type) gain will Norman recognize on the transfer?
b. What is Norman's basis int eh corporate stock and short0term notes received?
c. What is the corporation's basis in each asset it receives?