Chapter 15 Prob 83 Homework week 5

Chapter 15: Problem 83

Required questions to answer:

a. Identify significant tax and non tax issues or concerns that may differ across

entity types.

b. Provide your recommendation for forming CCS as a C corporation, S corporation,

LLC, or partnership. Explain your reasoning for your choice of entity, identify any issues that you may still be concerned about, and suggest recommendations for dealing with the concerns.

39.(LO2)Zhang incorporated her sole proprietorship by transferring inventory, a

building, and land to the corporation in return for 100 percent of the corporation’s

stock. The property transferred to the corporation had the following fair

market values and tax-adjusted bases:

FMV Tax-Adjusted Basis

Inventory $ 20,000 $ 10,000

Building 150,000 100,000

Land 230,000 300,000

Total $400,000 $410,000

The corporation also assumed a mortgage of $100,000 attached to the building

and land. The fair market value of the corporation’s stock received in the exchange

was $300,000. The transaction met the requirements to be tax-deferred under §351.

a. What amount of gain or loss does Zhangrealizeon the transfer of the property to her corporation?

b. What amount of gain or loss does Zhangrecognizeon the transfer of the

property to her corporation?

c. What is Zhang’s tax basis in the stock she receives in the exchange?

d. What is the corporation’s tax-adjusted basis in each of the assets received in the exchange? Assume the corporation assumed a mortgage of $500,000 attached to the building and land.

e. How much, if any, gain or loss does Zhang recognize on the exchange assuming the revised facts?

f. What is Zhang’s tax basis in the stock she receives in the exchange?

g. What is the corporation’s tax-adjusted basis in each of the assets received in the exchange?