Name: ________________________ Class: ___________________ Date: __________
Indicate whether the statement is true or false.
1. Section 351 (which permits transfers to controlled corporations to be tax deferred) can be justified under the wherewithal to pay concept.
2. Similar to like-kind exchanges, the receipt of “boot” under § 351 can cause loss to be recognized.
3. Tina incorporates her sole proprietorship with assets having a fair market value of $100,000 and an adjusted basis of $110,000. Even though § 351 applies, Tina may recognize her realized loss of $10,000.
4. In a § 351 transfer, a shareholder receives boot of $10,000 but ends up with a realized loss of $3,000. Only $7,000 of the boot will be taxed to the shareholder.
5. In a § 351 transfer, the receipt of boot is not taxed if the shareholder has a realized loss.
6. In a § 351 transfer, gain will be recognized to the extent of the lesser of realized gain or the boot received.
7. Allen transfers marketable securities with an adjusted basis of $120,000, fair market value of $300,000, for 85% of the stock of Heron Corporation. In addition, he receives cash of $40,000. Allen recognizes a capital gain of $40,000 on the transfer.
8. The definition of property for purposes of § 351 includes unrealized receivables transferred by a cash basis taxpayer.
9. The transfer of an installment obligation in a transaction qualifying under § 351 is a disposition of the obligation that causes gain to be recognized by the transferor.
____ 10. A secret process and patentable invention both constitute “property” for purposes of § 351. ____ 11. Since services are not considered property under § 351, a taxpayer must report as income the fair market value of stock received for such services.
____ 12. The receipt of securities (i.e., long-term debt) in exchange for the transfer of appreciated property to a controlled corporation results in recognition of realized gain to the transferor. ____ 13. In a § 351 transaction, if a transferor receives consideration other than stock, the transaction can be taxable. ____ 14. The receipt of nonqualified preferred stock in exchange for the transfer of appreciated property to a controlled corporation results in recognition of gain to the transferor. ____ 15. Jill transfers property worth $200,000 (basis of $190,000) to Blue Corporation. In return, she receives 80% of the stock in Blue Corporation (fair market value of $180,000) and a long-term note, executed by Blue and made payable to Jill (fair market value of $20,000). Jill recognizes gain of $20,000 on the transfer.
____ 16. Three individuals form Skylark Corporation with the following contributions: Cliff, cash of $50,000 for 50 shares; Brad, land (fair market value of $20,000) for 20 shares; and Ron, cattle (fair market value of $9,000) for 9 shares and services (fair market value of $21,000) for 21 shares. Section 351 will not apply in this situation because the control requirement has not been satisfied. ____ 17. In order to retain the services of Bonnie, a key employee in Ralph’s sole proprietorship, Ralph contracts with Bonnie to make her a 25% owner. Ralph incorporates the business receiving in return 100% of the stock. Three days later, Ralph transfers 25% of the stock to Bonnie. Under these circumstances, § 351 will not apply to the incorporation of Ralph’s business.
____ 18. One month after Sally incorporates her sole proprietorship, she gives 25% of the stock to her children. Section 351 cannot apply to Sally because she has not satisfied the 80% control requirement. ____ 19. A person who performs services for a corporation in exchange for stock cannot be treated as a member of the transferring group even if that person also transfers some property to the corporation. ____ 20. The use of § 351 is not...
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