TAX 8 Corporate Formation, Reorganiation, and Liquidation...

TAX 8 Corporate Formation, Reorganiation, and Liquidation
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CHAPTER 8 ATTEMPT 1 (1) Ramon incorporated his 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 $ 24,000 $ 12,400 Building 54,250 42,250 Land 181,000 58,500 Total $ 259,250 $ 113,150 The fair market value of the corporation’s stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Ramon. (Leave no cells blank - be certain to enter "0" wherever required. Loss amounts should be indicated by a minus sign. Omit the "$" sign in your response.) a. What amount of gain or loss does Ramon realize on the transfer of the property to his corporation? Gain or loss realized $ b. What amount of gain or loss does Ramon recognize on the transfer of the property to his corporation? Gain or loss recognized $ c. What is Ramon’s basis in the stock he receives in his corporation? Tax basis $ Explanation: a. Ramon realizes a net gain of $146,100 on this transfer, computed as follows: Fair market value of stock received $ 259,250 – Adjusted tax basis of the property transferred 113,150 Gain realized $ 146,100 b. Ramon does not recognize any gain or loss on the transfer because the requirements of §351 are met and no boot is received in the exchange. c. $113,150. Ramon’s tax basis in the stock received is a substituted basis of the assets transferred.
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(2) This year, Jack O. Lantern incurred a $69,750 loss on the worthlessness of his stock in the Creepy Corporation (CC). The stock, which Jack purchased in 2005, met all of the §1244 stock requirements at the time of issue. In December of this year, Jack’s wife, Jill, also incurred a $82,500 loss on the sale of Eerie Corporation (EC) stock that she purchased in July 2005 and which also satisfied all of the §1244 stock requirements at the time of issue. Both corporations are operating companies. (Input all amounts as positive values. Omit the "$" sign in your response.) a. How much of the losses incurred on the two stock sales can Jack and Jill deduct this year, assuming they do not have capital gains in the current or prior years? Deductible loss $ b. Assuming they did not engage in any other property transactions this year, how much of a net capital loss will carryover to next year for Jack and Jill? Capital loss carryover $ c. What would be the tax treatment for the losses if Jack and Jill reported only $65,500 of taxable income this year, excluding the securities transactions? Net operating loss deduction $ Capital loss carry forward $ Explanation: a. §1244 limits the ordinary loss deduction for a married couple filing jointly to $100,000. In this
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