Organizational Tax Research and Planning Chapters 6 & 8

Organizational Tax Research and Planning Chapters 6...

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Organizational Tax Research and Planning-ACC565 Homework Chapters 6 and 8 Chapter 6 C6:36 a) What are the consequences of the corporate formation transaction? If not for Sec. 351, Len Wallace would recognize gain on the corporate formation. He can only realize a gain of $300,000 on the transferred assets to ACE Corporation. However, the allocation of total stock basis is based on the FMVs of the asset which would give Wallace an adjusted basis of $100,000 for the stock he received from ACE and ACE’s basis for the asset would be $100,000 because their adjusted basis of the transferred asset exceeded the total FMV. b). What are the consequences of the corporate liquidation transaction? Sec 336(a) requires Ace Corporation to recognizes a gain of $400,000 on the distribution of the assets sold to Len as part of the complete liquidation and pay the taxes that are due on the gain. Because of the imposed taxes, Ace’s cash distribution is reduced. Under Sec. 331(a) Wallace should recognize a capital gain of $764,000 and to be treated
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Organizational Tax Research and Planning Chapters 6...

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