Question

Transaction 1: Assume that Alex, Mary and Jose form a brand new corporation. Alex and Mary...

Transaction 1: Assume that Alex, Mary and Jose form a brand new corporation. Alex and Mary contribute property for 45% of corporation each. The remaining 10% goes to Jose for services rendered. Please discuss the tax ramifications of this transaction.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

If any person or persons together transfer property in exchange for stock, and immediately after the transfer the person or persons are in control of the corporation then, that person or persons will not recognise any gain or loss in such transfer.

A person or persons are in control if they together own at least 80% of the voting stock and 80% of total shares of non-voting stock.

In this transaction above, Alex and Mary contributed property in exchange for stock, they together own 90% of the total shares issued. thus they will not recognise any gain or loss from this transaction. They don't have to pay any tax.

But Jose rendered service and received 10% stock in exchange for service. Services are not treated as property, thus the value of 10% stock will be taken as compensation for service rendered and will be taxed as ordinary income.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Mary and Todd form the MT Corporation, with a transfer of the following properties:             Mary               &nbs
Mary and Todd form the MT Corporation, with a transfer of the following properties:             Mary                            $500,000 cash             Todd                            $500,000 FMV property                                                 $300,000 tax basis Both Mary and Todd receive a 50% interest in the corporate stock. Complete the following blanks:                                                                         Mary                            Todd             Realized gain                                        ________                     ________             Recognized gain                                    ________                     _________             Basis of stock                                        _________                   _________             MT basis in contributed asset               _________                   _________ VARIATION 1:  In addition to Mary and Todd, Karla joins the corporation at its inception.  Karla will provide services to the corporation in exchange for a 25% interest in the...
Corporate Formations Problem Mary and Todd form the MT Corporation, with a transfer of the following...
Corporate Formations Problem Mary and Todd form the MT Corporation, with a transfer of the following properties: Mary $3,000,000 cash Todd $3,000,000 FMV property $2,300,000 tax basis Both Mary and Todd receive a 50% interest in the corporate stock. Complete the following Mary Todd Realized gain ________ ________ Recognized gain ________ _________ Basis of Stock _________ _________ MT basis in contributed asset __________ _________ VARIATION 1: In addition to Mary and Todd, Karla joins the corporation at its inception. Karla...
Assume that the functional form for new homes in a community each year is as follows:...
Assume that the functional form for new homes in a community each year is as follows: Qd= 1025 – (10*P) + (3*Pe) + (.25*Pr) + (8*Y) + (25*F) - (.75*T)             And take the following values as constant:                         Pe= 100 (in thousands of $)                         Pr= 700 (in dollars per month)                         Y = 45 (in thousands of $ per year)                         F = 2.8 (in persons per household)                         T = 120 (in $ of tax per home per year) (The demand equation requires...
1. Record the following business transactions in general journal form. Identify each transaction by number. You...
1. Record the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the transaction. Shareholders invested RM32,000 cash and equipment valued at RM14,000 in the business. Hired a secretary-receptionist at a salary of RM350 per week payable monthly. Purchased supplies on account RM700. Paid office rent of RM600 for the month. Completed a tax assignment and billed client RM1,100 for services provided. Received RM3,200 advance on a management consulting engagement. Received cash...
Adam, Beth, Clayton and David are forming a bakery business, called ABCD Corp, and decided to...
Adam, Beth, Clayton and David are forming a bakery business, called ABCD Corp, and decided to organize as a corporation. Adam Beth and Clayton will each own 300 shares of the common stock and David will own 100 shares of the stock (there are 1000 shares total of the corporation). Adam is contributing cash of $200,000, Beth is contributing equipment from a prior business that was originally purchased for $300,000 and was depreciated for tax purposes by $120,000 (current FMV...
Problem 4-30 (LO. 1, 3) Dan Knight and Patricia Chen, who are good friends, form Crane...
Problem 4-30 (LO. 1, 3) Dan Knight and Patricia Chen, who are good friends, form Crane Corporation. Dan transfers land (worth $200,000, basis of $60,000) for 50% of the stock in Crane. Patricia transfers machinery (worth $150,000, adjusted basis of $30,000) and provides services worth $50,000 for 50% of the stock. a. Will the transfers qualify under § 351? , because of Patricia's stock is counted in determining control since the property she transferred has than a nominal value in...
The following are separate situations: i) Alex disposed of several coins in Dec of the current...
The following are separate situations: i) Alex disposed of several coins in Dec of the current year and realized a capital gain in the amount of $12,000. Alex has net capital losses with respect to listed personal properties carried forward from previous taxation years as follows: 1993: $8,000 2014: $5,000 Indicate Alex's taxable net gain from the disposition of the listed personal property. ii) Christine S. has provided you with the following information with respect to her stock transactions in...
Assuming they decided on setting up a corporation, Drew will be contributing a warehouse worth $...
Assuming they decided on setting up a corporation, Drew will be contributing a warehouse worth $ 125,000 which he originally purchased for $50,000 in exchange for ½ of the stock of the company. However, Carter does not know if he will be contributing $100,000 of machinery and $25,000 of cash or the machinery along with $25,000 of services for ½ of the stock of the company. (2) Please expl ain the tax impact of the formation of the C ompany...
1.Norwell Company purchased $1,413,200 of new business equipment on July 10, 2020. This was Norwell's only...
1.Norwell Company purchased $1,413,200 of new business equipment on July 10, 2020. This was Norwell's only asset purchase for its 2020 taxable year. Compute Norwell's total tax depreciation deduction for this 7-year recovery property (assuming Norwell has sufficnet income for the Section 179 deduction). ? 2.Belsap Inc., a calendar year taxpayer, purchased a total of $590,000 depreciable personalty during May 2020. Which of the following statements is true? Multiple Choice Belsap can elect to expense 100% of the cost. The...
SHOW CALCULATIONS PLEASE: Your company wants to build a new manufacturing facility which will cost $2...
SHOW CALCULATIONS PLEASE: Your company wants to build a new manufacturing facility which will cost $2 million for plant building and $800,000 for machinery. It will have a net annual cash flow of $750,000 for the next 10 years. You could build it in your US location where your total incremental tax rate would be 45%. However you are also considering building it in Ireland.Calculate the after tax present worth of adding a new manufacturing facility in each of the two...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT