Several years ago, your client, Brooks Robinson, started an office cleaning service. His business was very successful, owing much to
a) How much gain or loss does Brooks realize on the transfer of each asset to the corporation?
b) How much, if any, gain or loss (on a per asset basis) does Brooks recognize?
c) How much gain or loss, if any, must the corporation recognize on the receipt of the assets of the sole proprietorship in exchange for the corporation's stock?
d) What tax basis does Brooks have in the corporation's stock?
e) What is the corporation's tax basis in each asset it receives from Brooks?
f) How would you answer the question in (b) if Brooks had taken back a 10-year note worth $25,000 plus stock worth $75,000 plus the liability assumption?
g) Will Brooks be able to transfer the accounts receivable to the corporation and have the corporation recognize the income when the receivable is collected?
h) Brooks was depreciating the equipment (200 percent declining balance) and building (straight-line) using MACRS when it was held inside the proprietorship. How will the corporation depreciate the equipment and building? Assume Brooks owned the equipment for four years (seven-year property) and the building for six years.
i) Will the corporation be able to deduct the liabilities when paid? Will it matter which accounting method (cash or accrual) the corporation uses?
j) Would you advise Brooks to transfer the land and building to the corporation? What other tax strategy might you suggest to Brooks with respect to the realty?
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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