Problem 1
Bart exchanges some real estate (basis of $800,00 and fair market value of $1 million) for other real estate owned by Roland (basis of $1.2 million and fair market value of $900,00) and $100,000 in cash. The real estate involved is unimproved and is held by Bart and Roland, before and after the exchanges, as ibvestsment property. Answer question following
A. What is Bart's realized gain on the exchange? Recognized gain?
B. What is Roland's realized loss? Recognized loss?
C. Support your results in (a) and (b) under the wherewithal to pay concept as applied to like-kind exchange (§ 1031).
Research Problem 1
Locate the following cited items and give a brief description of the topic or opinion in the item:
A. § 6694(a)
B. § 1.6694-1(b)
C. Rev. Rul. 86-55, 1986-1 C.B. 373.
D. PLR 8022027.
Problem 2
Ellie and Linda are equal owners in Otter Enterprises, a calendar year business. During the current year, Otter Enterprises has $320,000 of gross income and $210,000 of operating expenses. In addition, Otter has a long-term capital gain of $15,000 and makes distributions to Ellie and Linda of $25,000 each. Discuss the impact of this information on the taxable income of Otter, Ellie, and Linda if Otter is:
A. Partnership
B. An S corporation
C. A C corporation
Problem 3
The current year, Tanager Corporation (a C corporation) had operating income of $480,000 and operating expenses of $390,000. In addition, Tanager had a long-term capital gain of $55,000 and a short-term capital loss of $40,000.
A. Compute Tanager's taxable income and tax for the year.
B. Assume, instead, that Tanager's long-term capital gain was $15,000 (not $55,000).
Compute Tanager's taxable income and tax for the year.
Problem 4
Jane, Jon, and Clyde incorporate their respective business and form Starling Corporation. On March 1 of the current year, Jane exchanges her property (basis of $50,000 and value of $150,000) for 150 shares in Starling Corporation. On April 15, Jon exchanges his property (basis of $70,000 and value of $500,000) for 500 shares in Starling. On May 10, Clyde transfers his property (basis of $90,000 and value of $350,000) for 350 shares in Starling.
A. If the three exchanges are part of a prearranged plan, what gain will each of the parties recognize on the exchange?
B. Assume that Jane and Jon exchanged their property for stock four years ago, while Clyde transfers his property for 350 shares in the current year. Clyde's transfer is not part of a prearranged plan with Jane and Jon to incorporate their businesses. What gain will Clyde recognize on the transfer?
C. Returning to the original facts, If the property that Clyde contributes has a basis of $490,000 (instead of $90,000), how might the parties otherwise structure the transaction?