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C:2-3 Bruce and Bob organize Black LLC on May 10 of the current year

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C:2-3      Bruce and Bob organize Black LLC on May 10 of the current year. What is the entity’s default tax classification? Are any alternative classification(s) available? If so, (1) how do Bruce and Bob elect the alternative classification(s) and (2) what are the tax consequences of doing so?

C:2-54      On March 1 of the current year, Alice, Bob, Carla, and Dick form Bear Corporation and transfer the following items:

Property Transferred
Transferor Asset Basis to Transferor FMV Number of Common Shares Issued
Alice Land $12,000 $30,000
Building 38,000 70,000 400
Mortgage on the land and building 60,000 60,000
Bob Equipment 25,000 40,000 300
Carla Van 15,000 10,000 50
Dick Accounting services –0– 10,000 100

Alice purchased the land and building several years ago for $12,000 and $50,000, respectively. Alice has claimed straight-line depreciation on the building. Bob also receives a Bear note for $10,000 due in three years. The note bears interest at the prevailing market rate. Bob purchased the equipment three years ago for $50,000. Carla also receives $5,000 cash. Carla purchased the van two years ago for $20,000.

  1. Does the transaction satisfy the requirements of Sec. 351?
  2. What are the amount and character of the gains or losses recognized by Alice, Bob, Carla, Dick, and

Bear?

  1. What is each shareholder’s basis in his or her Bear stock? When does the holding period for the stock begin?
  2. What is Bear’s basis in its property and services? When does the holding period for each property begin?

C:2-55      On June 3 of the current year, Eric, Florence, and George form Wildcat Corporation and transfer the following items:

Item Transferred

Transferor Asset Basis to Transferor FMV Number of Common Shares Issued
Eric Land $200,000 $50,000 500
Florence Equipment –0– 25,000 250
George Legal services –0– 25,000 250

Eric purchased the land (a capital asset) five years ago for $200,000. Florence purchased the equipment three years ago for $48,000. The equipment has been fully depreciated.

  1. Does the transaction meet the requirements of Sec. 351?
  2. What are the amount and character of the gains or losses recognized by Eric, Florence, George, and Wildcat?
  1. What is each shareholder’s basis in his or her Wildcat stock? When does the holding period for the stock begin?
  2. What is Wildcat’s basis in the land, equipment, and services? When does the holding period for each property begin?

C:2-56      Assume the same facts as in Problem C:2-55.

  1. Under what circumstances is the tax result in Problem C:2-55 beneficial, and for which shareholders?
  2. Can you suggest ways to enhance the tax benefit?
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C:2-3      Bruce and Bob organize Black LLC on May 10 of the current year. What is the entity’s default tax classification? Are any alternative classification(s) available? If so, (1) how do Bruce and Bob elect the alternative classification(s) and (2) what are the tax consequences of doing so?

C:2-54      On March 1 of the current year, Alice, Bob, Carla, and Dick form Bear Corporation and transfer the following items:

  Property Transferred  
Transferor Asset Basis to Transferor FMV Number of Common Shares Issued
Alice Land $12,000 $30,000  
  Building 38,000 70,000 400
  Mortgage on the land and building 60,000 60,000  
Bob Equipment 25,000 40,000 300
Carla Van 15,000 10,000 50
Dick Accounting services –0– 10,000 100

Alice purchased the land and building several years ago for $12,000 and $50,000, respectively. Alice has claimed straight-line depreciation on the building. Bob also receives a Bear note for $10,000 due in three years. The note bears interest at the prevailing market rate. Bob purchased the equipment three years ago for $50,000. Carla also receives $5,000 cash. Carla purchased the van two years ago for $20,000.

  1. Does the transaction satisfy the requirements of Sec. 351?
  2. What are the amount and character of the gains or losses recognized by Alice, Bob, Carla, Dick, and

Bear?

  1. What is each shareholder’s basis in his or her Bear stock? When does the holding period for the stock begin?
  2. What is Bear’s basis in its property and services? When does the holding period for each property begin?

C:2-55      On June 3 of the current year, Eric, Florence, and George form Wildcat Corporation and transfer the following items:

Item Transferred

Transferor Asset Basis to Transferor FMV Number of Common Shares Issued
Eric Land $200,000 $50,000 500
Florence Equipment –0– 25,000 250
George Legal services –0– 25,000 250

Eric purchased the land (a capital asset) five years ago for $200,000. Florence purchased the equipment three years ago for $48,000. The equipment has been fully depreciated.

  1. Does the transaction meet the requirements of Sec. 351?
  2. What are the amount and character of the gains or losses recognized by Eric, Florence, George, and Wildcat?

  1. What is each shareholder’s basis in his or her Wildcat stock? When does the holding period for the stock begin?
  2. What is Wildcat’s basis in the land, equipment, and services? When does the holding period for each property begin?

C:2-56      Assume the same facts as in Problem C:2-55.

  1. Under what circumstances is the tax result in Problem C:2-55 beneficial, and for which shareholders?
  2. Can you suggest ways to enhance the tax benefit?

 

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