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1. Facts: Abby, Bob, and Cindy form West Corporation and transfer the following items to West:
Transferor Item Transferor?s Basis FMV Shares Received by Transferor
Abby Patent $0 $25,000 1,000 common
Bob Cash $25,000 $25,000 250 preferred
Cindy Services $0 $7,500 300 common
The common stock has voting rights. The preferred stock does not.
a. Question: Does the incorporation qualify for non-recognition under ?351?
b. Question: What are the tax consequences to Abby, Bob, Cindy, and West?
c. Question: How would your answer to parts (a) and (b) change is Bob instead had received
200 shares of common stock and 200 shares of preferred stock?
2. Facts: On May 1 of the current year, Abby, Bob, Cindy, and Dan form Newco Corporation with the
following investments:
Transferor Asset Basis to Transferor FMV Common Shares Issued
Abby Land $12,000 $30,000 400
Building $38,000 $70,000
Mortgage on land and building $60,000 $60,000
Bob Equipment $25,000 $40,000 300
Cindy Van $15,000 $10,000 50
Dan Accounting Services $0 $10,000 100
Abby purchased the land and building several years ago for $12,000 and $50,000, respectively. Bob also received a Newco Corporation note for $10,000 due in three years. Bob purchased the equipment three years ago for $50,000. Cindy also receives $5,000 cash. Cindy purchased the van two years ago for $20,000.
a. Question: Does the transaction satisfy the requirements of ?351?
b. Question: What are the tax consequences to Abby, Bob, Cindy, Dan, and Newco?
3. Question: On an incorporation of Newco that qualifies under ?351, Abby transfers Gainacre
(value = $40,000; basis = $8,000) and Lossacre (value = $10,000; basis = $15,000) in exchange for 4,000 shares of Newco stock (value = $40,000) and $10,000 of cash. What are the tax consequences to Abby and Newco?
4. Facts: Bob owns 80% of X Corporation stock. He transfers a car to X in exchange for additional
X stock worth $5,000 and X?s assumption of his $1,000 car debt and his $2,000 personal loan. The car originally cost Bob $12,000 and, on the transfer date, has a $4,500 adjusted basis and an $8,000 fair market value.
a. Question: What is the amount of Bob?s recognized gain or loss?
b. Question: What is Bob?s basis in his additional X shares?
c. Question: When does Bob?s holding period for the additional shares begin?
d. Question: What basis does X take in the car?
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