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Rose and Wayne form a new corporation. Rose contributes cash for 85% of the stock and Wayne contributes services for 15% of the stock. The tax effect is


A) Rose and Wayne must recognize their realized gains, if any.
B) Wayne must report the FMV of the stock received as capital gain.
C) Rose and Wayne are not required to recognize their realized gains.
D) Wayne must report the FMV of the stock received as ordinary income.

E) A) and D)
F) B) and D)

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Sarah has advanced money to her corporation. What tax issues should she consider with respect to this money?

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• Is it equity capital or debt?
• Is the...

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Gene purchased land five years ago as an investment. The land cost him $200,000 and is now worth $530,000. Gene plans to transfer the land to Dee Corporation, which will subdivide the land and sell individual parcels. Dee Corporation's profits on the land will be ordinary income. What are the tax consequences of the asset transfer and land sales if Gene contributes the land to Dee Corporation in exchange for all of its stock? What alternative methods can be used to structure the transaction to achieve better tax consequences?

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Gene recognizes no gain when he transfer...

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On January 20 of the current year, a group of ten individuals organize an LLC to conduct an ink-making business in Florida. This year, the LLC is an eligible entity under the check-the-box regulations. How will the LLC be taxed?

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The owners may elect to have t...

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The transferor's holding period for any boot property received in a Sec. 351 stock exchange


A) includes the holding period for the boot transferred.
B) begins on the day after the exchange.
C) begins on the day of the exchange.
D) is the same as the holding period of the stock received in the exchange.

E) A) and C)
F) A) and D)

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Which of the following statements is correct?


A) An owner of a C corporation is taxed on his or her proportionate share of earnings.
B) S shareholders are only taxed on distributions.
C) S shareholders are taxed on their proportionate share of earnings that are distributed.
D) S shareholders are taxed on their proportionate share of earnings whether or not distributed.

E) A) and B)
F) C) and D)

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Identify which of the following statements is true.


A) Section 351 provides for nonrecognition of gain for the transferee corporation when it distributes appreciated land that is boot property to a shareholder.
B) A corporation must recognize a loss when transferring noncash boot property that has declined in value and its stock to a transferor as part of a Sec. 351 exchange.
C) The transferee corporation's holding period for assets acquired in an exchange meeting the Sec. 351 requirements includes the transferor's holding period for the property.
D) All of the above are false.

E) A) and C)
F) All of the above

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For the last four years, Bob and Ellen have each owned 100 of the 200 outstanding shares of Racer Corporation's stock. Bob transfers land having a $10,000 basis and a $30,000 FMV to Racer for an additional 30 shares of stock, and Ellen transfers $2,000 for an additional two shares of stock. What is the amount of gain or loss that Bob must recognize on the exchange? If the transaction does not comply with the Sec. 351 requirements, how can it be made to comply?

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Bob must recognize $20,000 ($30,000 - $1...

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Matt and Sheila form Krupp Corporation. Matt contributes property with an FMV of $55,000 and a basis of $35,000. Sheila contributes property with an FMV of $75,000 and a basis of $40,000. Matt sells his stock to Paul shortly after the exchange. The transaction will


A) not qualify under Sec. 351.
B) qualify under Sec. 351 if Matt can show that the sale to Paul was not part of a prearranged plan.
C) qualify with respect to Sheila under Sec. 351 whether Matt qualifies or not.
D) qualify under Sec. 351 only if an advance ruling has been obtained.

E) None of the above
F) C) and D)

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Chris transfers land with a basis of $40,000 to Webb Corporation in exchange for 100% of Webb's stock. At the date of the transfer, the land had a $30,000 fair market value. Absent an election by Chris, Webb's basis in the land is


A) $30,000.
B) $35,000.
C) $40,000.
D) none of the above

E) A) and D)
F) B) and C)

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Yolanda transfers land, a capital asset, having a $70,000 adjusted basis and a $125,000 FMV plus $10,000 cash to Jazz Corporation in exchange for all its stock. Jazz Corporation assumes the $100,000 mortgage on the land. The mortgage assumption has no tax avoidance purpose and has the requisite business purpose. What is the amount of Yolanda's realized gain or loss? How much is recognized and what is its character? What is Yolanda's basis in the Jazz stock?

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Yolanda has a realized gain of $55,000 (...

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Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec. 351 transaction. Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV. Ralph's basis in the stock is


A) $75,000.
B) $70,000.
C) $65,000.
D) $60,000.

E) B) and D)
F) All of the above

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Identify which of the following statements is true.


A) A transferor's gain or loss that goes unrecognized when Sec. 351 applies is permanently exempt from taxation.
B) If a taxpayer transfers property and services as part of a transaction meeting the Sec. 351 requirements, all of the stock received is counted in determining whether the property transferors have acquired control.
C) If a taxpayer transfers property and services as part of a transaction meeting the Sec. 351 requirements, the nonrecognition of gain or loss will apply to the services.
D) All of the above are false.

E) A) and B)
F) None of the above

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On July 9, 2008, Tom purchased a computer (five-year property for MACRS purposes) for $6,000, which he used in his sole proprietorship. He claimed $1,200 (0.20 × $6,000) of depreciation for 2008. On February 9, 2009, he transfers the computer and other assets of his sole proprietorship to Brewer Corporation in exchange for Brewer stock in a transfer qualifying under Sec. 351. What is the amount of depreciation for 2008 claimed by Tom? What is the amount of depreciation for 2009 claimed by Brewer Corporation? What is Brewer's basis in the computer on the date of transfer?

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Brewer Corporation must use the same MAC...

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What is the tax treatment for a contribution of capital to a corporation by a nonshareholder who is not a customer, potential customer, government entity, or civic group?

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The corporation does not recognize incom...

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Identify which of the following statements is true.


A) The definition of stock under Sec. 351 includes stock rights and warrants.
B) The receipt of property other than stock by the transferor will trigger the recognition of gain or loss under Sec. 351.
C) The character of the gain recognized by the transferor when boot is received in a Sec. 351 transaction depends on the type of boot received.
D) All of the above are false.

E) A) and B)
F) None of the above

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Jeremy transfers Sec. 351 property acquired three years earlier having a $100,000 basis and a $160,000 FMV to Jeneva Corporation. Jeremy receives all 200 shares of Jeneva stock having a $140,000 FMV, and a $20,000 90-day Jeneva note. What is Jeremy's recognized gain?


A) $0
B) $60,000
C) $20,000
D) $160,000

E) All of the above
F) A) and C)

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Identify which of the following statements is false.


A) A solely owned corporation is a sole proprietorship.
B) A sole proprietorship is a separate taxable entity.
C) A sole proprietor is considered to be an employee of the business.
D) All of the above are false.

E) None of the above
F) All of the above

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Identify which of the following statements is true.


A) Under the check-the-box regulations, an LLC that has one member (owner) may be disregarded as an entity separate from its owner.
B) An unincorporated business may not be taxed as a corporation.
C) A new LLC that is owned by four members elects to be taxed under its default classification (as a partnership) in its first year of operations. The entity is prohibited from changing its tax classification at any time in the future.
D) All of the above are false.

E) A) and C)
F) None of the above

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Identify which of the following statements is true.


A) The transferee corporation's acquisition or assumption of liabilities in excess of the total adjusted bases of the properties transferred by a transferor results in a gain recognition by the transferor.
B) When a transferor exchanges a mortgaged property under Sec. 351 and the amount of the mortgage is greater than the transferor's basis in the property, the transferor's basis in the stock received will be equal to the basis the transferor had in the mortgaged property.
C) When forming a corporation, the accounts payable of a transferor's business are not liabilities for gain computation purposes if the transferor's business uses the accrual method of accounting.
D) All of the above are false.

E) All of the above
F) B) and C)

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