Please compute the following 3 phases. 

Phase 1: 4 Individuals want to form the Big Bad Violin Brewing Company

Individual 1 - Gives $100,000 for 1,000 shares

Individual 2 - Gives $10,000 in cash and a Brew making equipment - FMV $110,000,

Basis $40,000, Debt of $20,000 for 1,000 shares

Individual 3 - Gives brewery equipment FMV $120,000, basis $50,000 and receives

$20,000 in cash from the corporation plus 1,000 shares of stock.

Individual 4 - Give Warehouse FMV $200,000, basis $70,000, Debt $100,000

What are the tax effects to the individual shareholders and corporation.  Code Sections?


Phase 2:
The first 2 years of operating expenses are as follows:

Year 1 - Gross Sales $750,000, COGS $400,000, Equipment purchase 5 year asset

$100,000, Meals and entertainment $10,000, other operating expenses $60,000


Year 2 - Gross Sales $1.5 million, COGS $600,000, operating expenses $300,000 and a

fine of $50,000.  Federal taxes paid $100,000.


Distribution of $100,000 - $25,000 is each shareholder


Year 3 - Operations, same as year 2 except for the fines.

Also, corporation bought back all of shareholder 1s shares for $170,000

And 600 shares of 2s - Distributed a piece of equipment FMV $100,000, basis $60,000.


Please compute the E&P, Taxable income and the tax effect to each shareholder from these transactions.



Phase 3 - Liquidation

The company sold in year 4 for $1,000,000.  What is the gain/loss for:

1 - Sold the shares

2 - Sold the asset

Answer rating: 100% (QA)

1 Tax effects on corporations are very much different from tax on individuals Accor... View the full answer