Corporation and Fair Market Value
1. Sadie incorporates her sole proprietorship with assets having a fair market value of $80,000 and an adjusted basis of $100,000. Even though § 351 applies, Sadie may recognize her realized loss of $20,000.
F True False
2. For § 351 purposes, stock warrants are included in the definition of "stock."
F True False
3. In order to retain the services of Paige, a key employee in Byron's sole proprietorship, Byron contracts with Paige to make her a 30% owner. Byron incorporates the business receiving in return 100% of the stock. Three days later, Byron transfers 30% of the stock to Paige. Under these circumstances, § 351 will apply to the incorporation of Byron's business.
F True False
4. A person who performs services for a corporation in exchange for stock will be treated as a member of the transferring group even if that person only transfers a relatively small amount of property to the corporation. F True False
5. When a taxpayer incorporates her business, she transfers several liabilities to the corporation. If one of the liabilities is personal in origin, only that liability will be treated as boot. F; personal AND BUSINESS PURPOSES True False
6. Matthew and Gabriella form Epsilon Corporation. Matthew transfers property (basis of $50,000 and fair market value of $40,000) while Gabriella transfers land (basis of $25,000 and fair market value of $30,000) and $10,000 in cash. Each receives 50% of Epsilon Corporation's stock, which is worth a total of $80,000. As a result of these transfers: D;Matt FMV = 40’ Paid/basis= 50, Built in loss
Gabriella, FMV=30, basis=25, cash 10
They are giving in, NOTHING is coming back (not even the 10) A. Matthew has no recognized loss, but Gabriella a recognized gain of $10,000 B. Epsilon
F True False
2. For § 351 purposes, stock warrants are included in the definition of "stock."
F True False
3. In order to retain the services of Paige, a key employee in Byron's sole proprietorship, Byron contracts with Paige to make her a 30% owner. Byron incorporates the business receiving in return 100% of the stock. Three days later, Byron transfers 30% of the stock to Paige. Under these circumstances, § 351 will apply to the incorporation of Byron's business.
F True False
4. A person who performs services for a corporation in exchange for stock will be treated as a member of the transferring group even if that person only transfers a relatively small amount of property to the corporation. F True False
5. When a taxpayer incorporates her business, she transfers several liabilities to the corporation. If one of the liabilities is personal in origin, only that liability will be treated as boot. F; personal AND BUSINESS PURPOSES True False
6. Matthew and Gabriella form Epsilon Corporation. Matthew transfers property (basis of $50,000 and fair market value of $40,000) while Gabriella transfers land (basis of $25,000 and fair market value of $30,000) and $10,000 in cash. Each receives 50% of Epsilon Corporation's stock, which is worth a total of $80,000. As a result of these transfers: D;Matt FMV = 40’ Paid/basis= 50, Built in loss
Gabriella, FMV=30, basis=25, cash 10
They are giving in, NOTHING is coming back (not even the 10) A. Matthew has no recognized loss, but Gabriella a recognized gain of $10,000 B. Epsilon