Question

Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey...

Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey is contributing $228,000 for a 40 percent ownership interest, Mickayla is contributing a building with a value of $228,000 and a tax basis of $171,000 for a 40 percent ownership interest, and Taylor is contributing legal services for a 20 percent ownership interest.


What amount of gain is each owner required to recognize under each of the following alternative situations? [Hint: Look at §351 and §721.]

a. MMT is formed as a C corporation

b. MMT is formed as an S corporation.

c. MMT is formed as a LLC.

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Answer #1
Ans A If it is a C corporation
Mickey $0
Mickayla $0
Taylor $114,000.0
As per section 351 Mickey and Mickayla mwill not recognize any gain
As they transferred the asset. Taylor contributed services hence would
recognize gain
Taylor gain
Capital
Mickey $228,000
Mickayla $228,000 1
This is 80% capital $456,000
Total capital 456000/.8 $570,000.0
Taylor share 20%
Taylor capital $114,000.0
Ans b If it is a S corporation
Mickey $0
Mickayla $0
Taylor $114,000.0
ans c If its LLC
Mickey $0
Mickayla $0
Taylor $114,000.0
If any doubt please comment. If satisfied you
can rate
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