A, an individual, is an architect and general contractor. Bis a wealthy individual. Newco's Certificate of Incorporation states that it is authorized to issue 200 shares, no par value of common stock. B transfers S500,000 of cash to Newco in exchange for 50 shares of Newco's stock. A signs a contract with Newco in which A will perform services designing a housing project and then acting as general contractor on the construction of that housing project. In exchange, A will receive 50 shares of Newco's stock. 1b) Suppose instead that A and Newco do not enter into a written contract. A transfers $500 in cash for 50 shares of Newco's stock while B transfers $500,000 for 50 shares of Newco's stock. A then performs the architectural and contracting services for no further charge. Would this change your answer?

A, an individual, is an architect and general contractor. Bis a wealthy individual. Newco's Certificate of Incorporation states that it is authorized to issue 200 shares, no par value of common stock. B transfers S500,000 of cash to Newco in exchange for 50 shares of Newco's stock. A signs a contract with Newco in which A will perform services designing a housing project and then acting as general contractor on the construction of that housing project. In exchange, A will receive 50 shares of Newco's stock. 1b) Suppose instead that A and Newco do not enter into a written contract. A transfers $500 in cash for 50 shares of Newco's stock while B transfers $500,000 for 50 shares of Newco's stock. A then performs the architectural and contracting services for no further charge. Would this change your answer?

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter12: Corporations: Organization, Capital Structure, And Operating Rules

Section: Chapter Questions

Problem 29P

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George, an individual, is an architect and general contractor. Gracie is a wealthy individual. Newco’s Certificate of Incorporation states that it is authorized to issue 200 shares, no par value of common stock. Gracie transfers $500,000 of cash to Newco in exchange for 50 shares of Newco's stock. George signs a contract with Newco in which George will perform services designing a housing project and then acting as general contractor on the construction of that housing project. In exchange, George will receive 50 shares of Newco's stock. a. How will A be treated in this transaction? b. Suppose instead that George and Newco do not enter into a written contract. George transfers $500 in cash for 50 shares of Newco's stock while Gracie transfers $500,000 for 50 shares of Newco's stock. George then performs the architectural and contracting services for no further charge. Would this change your answer
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Mr. Boyd and Ms. Tuck decide to form a new corporation named BT Inc. Mr. Boyd transfers $20,000 cash, equipment (FMV $40,000; adjusted tax basis $41,500), and business inventory ($20,000 FMV; adjusted tax basis $12,000), and Ms. Tuck drafts the legal documents and designs the accounting system for B, valued at $20,000. BT issues 1,000 shares of common stock to its two shareholders. 1. Compute Mr. Boyd's realized and recognized gain on his exchange of property for stock, and determine his tax basis in his BT common shares.
Mr. Boyd and Ms. Tuck decide to form a new corporation named BT Inc. Mr. Boyd transfers $20,000 cash, equipment (FMV $40,000; adjusted tax basis $41,500), and business inventory ($20,000 FMV; adjusted tax basis $12,000), and Ms. Tuck drafts the legal documents and designs the accounting system for B, valued at $20,000. BT issues 1,000 shares of common stock to its two shareholders. How many shares should Mr. Boyd and Ms. Tuck each receive?
Yin and Jordan form a Corporation together on March 22, 2022. Jordan transfers cash of $300,000 in exchange for 30,000 shares. Yin transferred a Patent with a basis of $50,000 and FMV of $60,000 in exchange for 26,000 shares in the company and an office building with a basis of $110,000, liabilities of $40,000 and FMV of $200,000. What is Yin's basis in the 26,000 shares she got in the exchange on March 22, 2022? What is the Corporation's basis in the "Office Building" received from Yin?
Henry transfers property with an adjusted basis of $95,000 and an FMV of $100,000 to a newly formed corporation in a Sec. 351 exchange. Henry receives stock with an FMV of $85,000 and a short-term note with a $15,000 FMV. Henry's basis in the stock is A. $90,000. B. $85,000. C. $100,000. D. $95,000.
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Kendall and Sebastian form Party Inc., a C-Corporation. Sebastian transfers land (FMV $200,000 and adjusted basis of 200,000) and agrees to provide legal services to draft the organization documents worth $190,000 for 50% of the stock in the corporation. Kendall transfers equipment (FMV $410,000 adjusted basis of $85,000 for 50% of the stock in the corporation and $20,000 cash. The value of the stock received is $290,000 for each Kendall and Sebastian. Show all calculations. a. Will the transfer qualify under §351 as a tax free transfer? Explain. b. What are the tax consequences to Kendal and Sebastian including the basis in the stock they received? c. What is Party Inc.’s basis in the land and equipment received? d. Would your answers change to questions a and b if Sebastian had only contributed the services?
Indigo Corporation wants to transfer cash of $150,000 or property worth $150,000 to one of its shareholders, Linda, in a redemption transaction that will be treated as a qualifying stock redemption. If Indigo distributes property, the corporation will choose between two assets that are each worth $150,000 and are no longer needed in its business: Property A (basis of $75,000) and Property B (basis of $195,000). a. Compute Indigo’s recognized gain or loss if it distributes Property A in redemption of Linda’s shares. b. Compute Indigo’s recognized gain or loss if it distributes Property B in redemption of Linda’s shares. c. Compute Indigo’s recognized gain or loss if it sells Property B to an unrelated party and then distributes the sale proceeds in redemption of Linda’s shares.