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Exam 18: Corporations: Organization and Capital Structure

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Question 51

Multiple Choice

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George (an 80% shareholder) has made loans to Mountainview Corporation that become worthless in the current year.George is not employed by Mountainview.

A) George is not permitted a deduction for the worthless loans.
B) The loans provide a nonbusiness bad debt deduction to George in the current year.
C) The loans provide George with a business bad debt deduction.
D) George may claim an ordinary loss as to the worthless loans.
E) None of the above.

F) All of the above
G) A) and B)

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Question 52

Multiple Choice

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Albert transfers land (basis of $140,000 and fair market value of $320,000) to Gold Corporation for 80% of its stock and a note payable in the amount of $80,000.Gold assumes Albert's mortgage on the land of $200,000.

A) Albert has a recognized gain on the transfer of $140,000.
B) Albert has a recognized gain on the transfer of $80,000.
C) Albert has a recognized gain on the transfer of $60,000.
D) Gold Corporation has a basis in the land of $220,000.
E) None of the above.

F) All of the above
G) None of the above

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Question 53

True/False

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Tina incorporates her sole proprietorship with assets having a fair market value of $100,000 and an adjusted basis of $110,000.Even though § 351 applies,Tina may recognize her realized loss of $10,000.

How is the transfer of liabilities in a property transaction generally treated for tax purposes? How is a transfer of liabilities generally treated in a § 351 transaction? What exceptions could arise to this usual treatment in a § 351 setting?

A taxpayer transfers assets and liabilities to a corporation in return for its stock.If the liabilities exceed the basis of the assets transferred,the taxpayer will have a negative basis in the stock.

In a § 351 transfer,a shareholder receives boot of $10,000 but ends up with a realized loss of $3,000.Only $7,000 of the boot will be taxed to the shareholder.

Jane transfers property (basis of $180,000 and fair market value of $500,000) to Green Corporation for 80% of its stock (worth $425,000) and a long-term note (worth $75,000) ,executed by Green Corporation and made payable to Jane.As a result of the transfer:

When a taxpayer transfers property subject to a mortgage to a controlled corporation in an exchange qualifying under § 351,the transferor shareholder's basis in stock received in the transferee corporation is increased by the amount of the mortgage on the property.

A shareholder transfers a capital asset to Red Corporation for its stock.If the transfer qualifies under § 351,Red's holding period for the asset begins on the day of the exchange.

Art,an unmarried individual,transfers property (basis of $130,000 and fair market value of $120,000) to Condor Corporation in exchange for §1244 stock.The transfer qualifies as a nontaxable exchange under § 351.Because the property is loss property,Condor takes a basis in the property of $120,000.Five years later,Art sells the Condor stock for $50,000.With respect to the sale,Art has:

If a shareholder owns stock received as a gift from her mother,it cannot be § 1244 stock.

Earl and Mary form Crow Corporation.Earl transfers property,basis of $200,000 and value of $1,600,000,for 50 shares in Crow Corporation.Mary transfers property,basis of $80,000 and value of $1,480,000,and agrees to serve as manager of Crow for one year;in return Mary receives 50 shares of Crow.The value of Mary's services is $120,000.With respect to the transfers:

George transfers cash of $150,000 to Finch Corporation,a newly formed corporation,for 100% of the stock in Finch worth $80,000 and debt in the amount of $70,000,payable in equal annual installments of $7,000 plus interest at the rate of 9% per annum.In the first year of operation,Finch has net taxable income of $40,000.If Finch pays George interest of $6,300 and $7,000 principal payment on the note: