1. A, an individual, is an architect and general contractor. B is a wealthy individual. Newco's...

  
 

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1. A, an individual, is an architect and general contractor. B is 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 $500,000 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. a. How will A be treated in this transaction? b. 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? 2. A transfers land to Newco in exchange for 100% of Newco's stock. The land has a basis of $50, FMV of $100 and is subject to a mortgage of $40. a. What are the consequences to each of the parties? b. Suppose in that the mortgage was placed on the property immediately before the transfer to Newco. A wanted cash in order to buy a yacht to be used for personal purposes, so he took out a mortgage on the land. Would this change your answer? c. Suppose instead that the mortgage was for $60. Suppose further that this mortgage was incurred on the purchase of the property many years ago. Would this change your answer? d. Same as (c) except that A also transfers accounts payable of $10. A is a cash basis taxpayer. How would this change your answer? 3. A, an individual, owns a widget business. A transfers this business to Newco in exchange for Newco stock worth $10 and 30-year bonds with a face and FMV of $90. How will the bonds be treated for tax purposes? 4. A, an individual, owns 100% of the common stock of X Co. A's basis in this stock is 25. X has current E&P of 100 and accumulated E&P of 40. a. X makes a distribution of $200 cash. What are the consequences of this distribution? b. Same as (a) except that instead of one distribution of $200, X makes four quarterly distributions of $50 each. These distributions occur on February 1, May 1, August 1 and November 1. Does this change your answer? 5. X Co. has the following items of possible tax significance in 2006. Determine its current earnings and profits for 2006. • book pre-tax income of 1,000,000. • book tax expense of 340,000. taxable income of 400,000. federal taxes of 125,000. • • interest from municipal bonds of 100,000. • premiums for officer's term life insurance of 25,000 (X is the beneficiary). • X was allowed depreciation of 40,000 on an apartment building acquired in 1998. The building's original cost was 1,000,000. • X exchanged land used in its business for another parcel of land also to be used in X's business. The land had a FMV of 1,000,000 and a basis of 500,000. X was able to currently utilize a net operating loss carryover of 100,000. 6. A, an individual, owns 100% of X Co. a. X distributes a parcel of land with a basis of $40 and a fair market value of $100 to A. What gain or loss does X have from this transaction? b. Suppose instead that X distributes a piece of equipment with a cost of $60 and accumulated depreciation of $20. Assume that A will use the asset in A's business. Will these facts change your answer? c. Same as (a) except that the land has a FMV of $30. How will this change your answer? d. What impact does the distribution have on the E&P of X? e. What is the amount of distribution to A? What basis will A have in the land? f. Same as (e) except that the land is subject to a mortgage of $20. Discuss how this will change your analysis. 7. A and B, both individuals, each owns 50 shares of X Corp. A and B have bases in their X stock of $60 and $120 respectively. X has accumulated E&P of $100. X distributes 10 shares of common each to A and B. What consequences from this distribution? 8. A, an individual, owns all 100 shares of X Co. A's basis in these shares is $1 per share ($100 total). a. A transfers 10 shares to X in exchange for cash of 10. How will this transaction be treated for tax purposes? b. Suppose instead that there are 2 shareholders, A and B. Each owns 50 shares of X Co. A transfers all 50 shares to X in exchange for cash of 50. How will this transaction be treated? c. Same as (b) except that A and B are husband and wife. Would this change your answer? 9. P Co. owns 100% of S Co. P's basis in S Co. is $100. S Co. owns land, FMV $200, basis $125. S's E&P is $50. S adopts a plan of liquidation and liquidates later that same day. What consequences to the parties? 10. Prior to the transaction described below, B, an individual, owns 900 shares (100%) of P Co. A's basis in his T Co. stock is $20. T transfers all of its assets to P. P transfers 100 shares of its stock worth $200 and $10 cash to T which then liquidates. T has accumulated E&P of $20. P has accumulated E&P of $200. What is the treatment to A? 1. A, an individual, is an architect and general contractor. B is 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 $500,000 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. a. How will A be treated in this transaction? b. 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? 2. A transfers land to Newco in exchange for 100% of Newco's stock. The land has a basis of $50, FMV of $100 and is subject to a mortgage of $40. a. What are the consequences to each of the parties? b. Suppose in that the mortgage was placed on the property immediately before the transfer to Newco. A wanted cash in order to buy a yacht to be used for personal purposes, so he took out a mortgage on the land. Would this change your answer? c. Suppose instead that the mortgage was for $60. Suppose further that this mortgage was incurred on the purchase of the property many years ago. Would this change your answer? d. Same as (c) except that A also transfers accounts payable of $10. A is a cash basis taxpayer. How would this change your answer? 3. A, an individual, owns a widget business. A transfers this business to Newco in exchange for Newco stock worth $10 and 30-year bonds with a face and FMV of $90. How will the bonds be treated for tax purposes? 4. A, an individual, owns 100% of the common stock of X Co. A's basis in this stock is 25. X has current E&P of 100 and accumulated E&P of 40. a. X makes a distribution of $200 cash. What are the consequences of this distribution? b. Same as (a) except that instead of one distribution of $200, X makes four quarterly distributions of $50 each. These distributions occur on February 1, May 1, August 1 and November 1. Does this change your answer? 5. X Co. has the following items of possible tax significance in 2006. Determine its current earnings and profits for 2006. • book pre-tax income of 1,000,000. • book tax expense of 340,000. taxable income of 400,000. federal taxes of 125,000. • • interest from municipal bonds of 100,000. • premiums for officer's term life insurance of 25,000 (X is the beneficiary). • X was allowed depreciation of 40,000 on an apartment building acquired in 1998. The building's original cost was 1,000,000. • X exchanged land used in its business for another parcel of land also to be used in X's business. The land had a FMV of 1,000,000 and a basis of 500,000. X was able to currently utilize a net operating loss carryover of 100,000. 6. A, an individual, owns 100% of X Co. a. X distributes a parcel of land with a basis of $40 and a fair market value of $100 to A. What gain or loss does X have from this transaction? b. Suppose instead that X distributes a piece of equipment with a cost of $60 and accumulated depreciation of $20. Assume that A will use the asset in A's business. Will these facts change your answer? c. Same as (a) except that the land has a FMV of $30. How will this change your answer? d. What impact does the distribution have on the E&P of X? e. What is the amount of distribution to A? What basis will A have in the land? f. Same as (e) except that the land is subject to a mortgage of $20. Discuss how this will change your analysis. 7. A and B, both individuals, each owns 50 shares of X Corp. A and B have bases in their X stock of $60 and $120 respectively. X has accumulated E&P of $100. X distributes 10 shares of common each to A and B. What consequences from this distribution? 8. A, an individual, owns all 100 shares of X Co. A's basis in these shares is $1 per share ($100 total). a. A transfers 10 shares to X in exchange for cash of 10. How will this transaction be treated for tax purposes? b. Suppose instead that there are 2 shareholders, A and B. Each owns 50 shares of X Co. A transfers all 50 shares to X in exchange for cash of 50. How will this transaction be treated? c. Same as (b) except that A and B are husband and wife. Would this change your answer? 9. P Co. owns 100% of S Co. P's basis in S Co. is $100. S Co. owns land, FMV $200, basis $125. S's E&P is $50. S adopts a plan of liquidation and liquidates later that same day. What consequences to the parties? 10. Prior to the transaction described below, B, an individual, owns 900 shares (100%) of P Co. A's basis in his T Co. stock is $20. T transfers all of its assets to P. P transfers 100 shares of its stock worth $200 and $10 cash to T which then liquidates. T has accumulated E&P of $20. P has accumulated E&P of $200. What is the treatment to A?

Answer rating: 100% (QA)

The detailed answer for the above question is provided below 1 a A will be treated as receiving 500000 of Newco stock in exchange for his architectural and contracting services This is a taxable event ... View the full answer