Bear Corporation and Transfer of Assets
Memorandum
To: Tax Manager
From:
Re: Bear Corporation and Transfer of Assets
Facts: Alice, Bob, Carla, and Dick form Bear Corporation with help from a lawyer and transfer assets to the corporation. Alice transferred building and land with a basis of 12,000 and 38,000. Bob transfers in equipment with a basis of 25,000. Carla transfers Van with a basis of 15,000 and Dick gives his accounting services with a basis of zero.
Issues: Alice, Bob, Carla, and Dick intend to form Bear Corporation as a non-taxable event and want to know what the tax consequences are resulting in the formation of Bear Corporation and the transfer of assets to the corporation.
Conclusions: Alice transferred in building and land with a mortgage liability and received 400 shares of common stock. Alice however will recognize a gain of $10,000 the basis of the building and land is 0 (100,000 minus the mortgage of 60,000 plus the gain of 10,000).
Bob transferred equipment and receives a bear note of $ 10,000 (boot) that is due in three years and 300 shares of common stock. Bob will recognize a gain of the $ 10,000 note the lesser value of the gain of $15,000 from the transfer of equipment. However, the remaining gain of 5,000 (40,000 less 25,000 basis less 10,000 note) will be deferred to later years. The basis of equipment transferred in is $25,000 (25,000 plus 10,000 gain minus the receipt of note 10,000). (40,000 less 25,000 basis).
Carla transfers a van and receives $ 5,000 cash (boot) and 50 shares of common stock. Carla will recognize the gain of the $5,000. The basis of the van is $15,000.
Dick performs accounting services for Bear Corporation in exchange for stock worth $10,000. Dick exchange is however taxable because he provides services in exchange for stock. Dick needs to recognize $10,000 of ordinary income. Dick has a basis of stock at fair market value of $10,000.
All of the above transaction satisfies section 351 except for Dick that
To: Tax Manager
From:
Re: Bear Corporation and Transfer of Assets
Facts: Alice, Bob, Carla, and Dick form Bear Corporation with help from a lawyer and transfer assets to the corporation. Alice transferred building and land with a basis of 12,000 and 38,000. Bob transfers in equipment with a basis of 25,000. Carla transfers Van with a basis of 15,000 and Dick gives his accounting services with a basis of zero.
Issues: Alice, Bob, Carla, and Dick intend to form Bear Corporation as a non-taxable event and want to know what the tax consequences are resulting in the formation of Bear Corporation and the transfer of assets to the corporation.
Conclusions: Alice transferred in building and land with a mortgage liability and received 400 shares of common stock. Alice however will recognize a gain of $10,000 the basis of the building and land is 0 (100,000 minus the mortgage of 60,000 plus the gain of 10,000).
Bob transferred equipment and receives a bear note of $ 10,000 (boot) that is due in three years and 300 shares of common stock. Bob will recognize a gain of the $ 10,000 note the lesser value of the gain of $15,000 from the transfer of equipment. However, the remaining gain of 5,000 (40,000 less 25,000 basis less 10,000 note) will be deferred to later years. The basis of equipment transferred in is $25,000 (25,000 plus 10,000 gain minus the receipt of note 10,000). (40,000 less 25,000 basis).
Carla transfers a van and receives $ 5,000 cash (boot) and 50 shares of common stock. Carla will recognize the gain of the $5,000. The basis of the van is $15,000.
Dick performs accounting services for Bear Corporation in exchange for stock worth $10,000. Dick exchange is however taxable because he provides services in exchange for stock. Dick needs to recognize $10,000 of ordinary income. Dick has a basis of stock at fair market value of $10,000.
All of the above transaction satisfies section 351 except for Dick that