Todd and Elaine purchased for $300,000 a building that was used for manufacturing pianos. Then as promoters, they formed a new corporation and resold the building to the new corporation for $500,000 worth of stock. After discovering the actual purchase price paid by the promoters, the other shareholders desire to have $200,000 of the common stock canceled. Can they succeed in this action?

Todd and Elaine purchased for $300,000 a building that was used for manufacturing pianos. Then as promoters, they formed a new corporation and resold the building to the new corporation for $500,000 worth of stock. After discovering the actual purchase price paid by the promoters, the other shareholders desire to have $200,000 of the common stock canceled. Can they succeed in this action?

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter19: Deferred Compensation

Section: Chapter Questions

Problem 1RP

See similar textbooks

Similar questions

Jeff Bezos, after stepping down from Amazon, forms a new corporation by contributing land with a basis of $150,000 and a fair market value of $2,000,000. The land has an outstanding mortgage loan of $400,000. Prior to the transfer, Jeff Bezos was in dire need of some cash to fund his gambling trip to Las Vegas, so he refinanced the existing mortgage and received $200,000 in cash as a result of the refinance. What code section would apply to the above transaction? What gain, if any, would Jeff Bezos have to recognize for tax purposes? (hint: either 357(a), 357(b), 357(c)) Briefly explain your answer.
Mr. Daniel has preferred shares in ABC Corporation. The Board of Directors of ABC is thinking of selling substantially all of the company’s assets. A meeting was called to vote on said matter. Mr. Daniel is thinking if he can vote on the said meeting. He comes to you, his bright accountant, for advice, what would be your answer to him? pls help me, thank you
Keith’s sole proprietorship holds assets that, if sold, would yield a gain of $100,000. It also owns assets that would yield a loss of $30,000. Keith incorporates his business using only the gain assets. Two days later, Keith sells the loss assets to the newly formed corporation. What is Keith trying to accomplish? Will he be successful? Explain.
Donald and Melania agree to go into business together. Donald will contribute a building with a FMV of $600,000 and a tax basis of $200,000 in return for 50 percent of the stock in the corporation. The corporation will assume a $300,000 mortgage on the building. Melania will contribute $300,000 cash in return for 50% of the stock of the corporation. How much gain, if any, does Donald recognize on the transfer of his building assuming the transaction qualifies under IRC Section 351?
I have answered this question and am looking to see if it is correct. Yvonne and Simon form Ion Corporation. Yvonne transfers equipment (basis of $110,000 and fair market value of $165,000). Simon invests $130,000 of cash. They each receive 100 shares in Ion Corporation, worth $130,000, but Yvonne also receives $35,000 of cash from Ion. Calculate Ion Corporation’s basis in the equipment. In addition, determine Yvonne and Simon’s basis in the Ion stock. Yvonne received cash, Ion Corporation subject to section 351 treatment. The gain which is recognized for Yvonne is the lower of the realized gain and the boot. The realized gain is $55,000 and the boot is $35,000 so the recognized gain for Yvonne is $35,000 Yvonne’s basis of stock is $110,000 Ion’s stock basis is $145,000 Simon’s stock basis is $130,000
Xavier and Ciara form a corporation to provide cleaning services to local businesses. After two years of trying to make a go of the business, the profits they had hoped for are just not there. Xavier and Ciara decide to dissolve the corporation and go their separate ways. To terminate the corporate entity, Xavier and Ciara must: Choose three. X pay the corporate debts and distribute remaining funds to themselves. X X file articles of dissolution with the state seek a court order for dissolution vote to terminate
Robert and Lori (Robert’s sister) own all of the stock in Swan Corporation (E & P of $1,000,000). Each owns 500 shares and has a basis of $85,000 in the shares. Robert wants to sell his stock for $600,000, the fair market value, but he will continue to be employed as an officer of Swan Corporation after the sale. Lori would like to purchase Robert’s shares, becoming the sole shareholder in Swan, but Lori is short of funds. What are the tax consequences to Robert, Lori, and Swan Corporation under the following circumstances? Swan Corporation distributes cash of $600,000 to Lori, and she uses the cash to purchase Robert’s shares. Swan Corporation redeems all of Robert’s shares for $600,000.
You and your father have decided to start a business dealing with mining supplies and have prepared a detailed business plan and finalised company incorporation documents. Following this, you carried out a feasibility study to ascertain whether the venture would be viable. You and your father jointly decided to cease the project due to a lack of funds and viability, but not before you incurred a $10,000 feasibility cost. Required: Would any income or deductions be permitted for tax purposes? Briefly discuss.
7. Nancy and her daughter, Kathleen, have been working together in a cattery called "The Perfect Cat." Nancy formed the business several years ago as a sole proprietorship, and it has been very successful. Assets currently have a fair market value of $450,000 and a basis of $180,000. On the advice of their tax accountant, Nancy decides to incorporate "The Perfect Cat." Because of Kathleen's participation, Nancy would like her to receive new shares in the corporation. What are the relevant tax issues?
Jean Jones, Robert Martin, and Lee Brown decide to form a new business to be operated as a C corporation. All three plan to transfer property to JRL Inc. solely in exchange for newly issued common stock in the corporation. Robert and Lee plan to transfer legal title in their properties to the corporation on December 1, 20X2, at which time they will receive 800 and 700 shares of JRL stock, respectively. Jean Jones will be out of the country through January 20X3, and will wait to transfer title in her assets to JRL Inc. until February 5, 20X3, in exchange for 500 shares of stock. Required What will be the tax consequences of this February 5 exchange if Jean’s business properties have a FMV of $10,000 and a basis of $3,500 on the date she exchanges them for a 25% stock interest in JRL Inc.?
The Controller was approached by some business colleagues about doing a Section 351 transaction for the formation of a new separate corporation. Big Corporation has a nice parcel of land that they bought for $10,000 but it is worth now $1,000,000. Big Corporation does not want to just sell it because that would be an immediate recognized gain of $990,000 on their tax return. But the Controller heard that if that land were contributed to the new corporation for stock in the new corporation worth $1,000,000, it would not be taxable. Can a Section 351 transaction defer the taxable income if that property is contributed?
Scott requested Jenny to work with the Bureau of Internal Revenue (BIR) in further reducing the tax liability of the company believing her to be an accountant. Meanwhile, Jenny took advantage of Scott’s mistaken belief and trust and convinced him that he would reduce the company’s tax liability by 50% in exchange for a substantive number of shares in the company. Is Scott’s donation of a substantive number of the company’s shares to Jenny valid? Why or why not?