Question

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 will provide services to the corporation in exchange for a 22% interest in the stock. That is, she receives 22% of the outstanding shares. Does anything change? Why or why not? CHECK THE BOOK AS A SOURCE

VARIATION 2: return to original facts (no Karla). Todd’s property is valued at $3,800,000 but is contributed subject to a $800,000 liability.

Complete the following

Mary Todd

Realized gain ________ ________

Recognized gain ________ _________

Basis of stock _________ _________

MT basis in contributed asset __________ _________

Answer 1

Ans.1

There is no Gain/Loss is recognized when a partner contributes property to a partnership firm in lieu of partnership interest.

The Partnership Ratio is the money plus the adjusted basis of any property contributed by the partner.

  

     

Realized gain = NIL

Recognized gain = NIL

Basis of Stock = 1:1

MT basis in contributed asset = 3000000:2300000

=30:23

ANS.2 -VARIATION 1:

Karla's share = 22%

Remaining share of Mary and Todd = 78%

Marry's share = 78 50% = 39%

Todd's share = 39%

Ans.3-VARIATION 2:

Realized gain = NIL

Recognized gain = NIL

Basis of Stock = 1:1

Todd's net contribution = $3,800,000 - $800,000 = $3,000,000

MT basis in contributed asset = 3000000:3000000

=1:1