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SM Ch04 SWFT2013

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SM Ch04 SWFT2013SM C

    CHAPTER 4

    CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE

    SOLUTIONS TO PROBLEM MATERIALS

     Status: Q/P

    Question/ Learning Present in Prior

    Problem Objective Topic Edition Edition

     1 LO 1 Compare ? 351 and ? 1031 in terms of Unchanged 1

     justification and effect

     2 LO 1 Possible gain and/or loss recognition on Unchanged 2

     a ? 351 transfer

     3 LO 1 Definition of ―property‖ in ? 351 transfers New

     *4 LO 1 What is included as ―stock‖ under ? 351 New

     5 LO 1 Receipt of a note in exchange for property Unchanged 5

     transferred to a controlled corporation

     6 LO 1 Explain control requirement of ? 351; Unchanged 6

     effect of specific situations on control

     requirement

     *7 LO 1 Incorporating a new business New

     8 LO 1, 2, 7 Types of consideration received in exchange Unchanged 8

     for property; alternatives other than stock

     9 LO 1 Charitable gift of stock shortly after ? 351 New

     exchange

     10 LO 1 Shareholder who transfers property and New

     services for stock as part of control group

     11 LO 1 Transfers to an existing corporation Unchanged 11

     12 LO 2 Effect of debt on basis in corporate stock in New

     a ? 351 transfer

     13 LO 2 Bona fide business purpose requirement in Unchanged 13

     transfer of liabilities to a controlled

     corporation

     14 LO 2 Both ?? 357(b) and (c) are applicable to a New

     ? 351 transfer

     15 LO 3 Impact of various attributes on stock basis Unchanged 15

     calculation

     16 LO 3 When stock issued for services is Unchanged 16

     deductible/not deductible

     17 LO 3 Holding period rules for corporation and New

     shareholder contrasted

     18 LO 4 Basis rules for property acquired from a Unchanged 18

     shareholder and from a nonshareholder

     19 LO 5 Advantages of utilizing debt in the Unchanged 19

     capitalization of a corporation

    4-1

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4-2 2013 Corporations Volume/Solutions Manual

     Status: Q/P

    Question/ Learning Present in Prior

    Problem Objective Topic Edition Edition

     *20 LO 5 Relevant factors in reclassification of debt Unchanged 20

     as equity

     21 LO 6 Tax treatment of worthless stock when Unchanged 21

     ? 1244 does not apply

     22 LO 6 Shareholder loan to corporation: business or Unchanged 22

     nonbusiness bad debt?

     23 LO 6 Tax treatment in selected situations where Unchanged 23

     corporate stock has declined in value

     24 LO 1, 7 Selection of assets to transfer to corporation Unchanged 24

     25 LO 7 Selection of assets to transfer to corporation Unchanged 25

     *26 LO 1, 3 Formation of corporation; gain or loss on New

     transfer; transfers of appreciated and

     built-in loss property, services, liabilities;

     basis computations

     *27 LO 1, 3 Formation of corporation; gain on transfer; Modified 27

     basis of stock; basis of property

     28 LO 1, 7 Formation of corporation with transfer of Unchanged 28

     property from several shareholders at

     different times

     29 LO 1 Transfer of property to a corporation after Unchanged 29

     date of formation of corporation

     30 LO 1 Transfer of property and services for stock New

     31 LO 1 Subsequent transfers to corporation New

     *32 LO 1, 3 Transfer of property and services for stock Unchanged 32

     33 LO 1, 3 Formation of corporation; transfer of Unchanged 33

     services for stock

     34 LO 3 Stock received for services rendered Unchanged 34

     35 LO 1, 7 Transfers to existing corporation; transfer Unchanged 35

     of nominal amount of property

     *36 LO 1, 2, 3 Shareholder liabilities assumed by New

     corporation in excess of basis of assets

     transferred

     37 LO 1, 2, 3 Corporate formation: gain or loss Unchanged 37

     recognized; stock basis; property basis

     to the corporation

     *38 LO 1, 2, 3 Application of ? 357(b) and ? 357(c) Unchanged 38

     *39 LO 1, 3 Basis adjustment for loss property in a ? 351 Modified 39

     transaction

     *40 LO 1, 2, 3 Incorporation of cash basis business; effect Unchanged 40

     of trade payables

     41 LO 1, 3 Stock received for services rendered Modified 41

     42 LO 1, 3 Stock received for services rendered Modified 42

     43 LO 1, 3 Depreciation recapture in a ? 351 transfer Unchanged 43

     *44 LO 4 Contribution to corporation by New

     nonshareholder

     45 LO 5, 6 Investor losses; business versus Unchanged 45

     nonbusiness bad debts

     46 LO 5, 6 Reclassification of debt as equity Unchanged 46

     47 LO 6 Section 1244 stock; transfer of ? 1244 Unchanged 47

     stock to another individual

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     Corporations: Organization and Capital Structure 4-3

     Status: Q/P

    Question/ Learning Present in Prior

    Problem Objective Topic Edition Edition

     48 LO 6 Transfer of ? 1244 stock to another Unchanged 48

     individual

     49 LO 6 Section 1244 stock; determination of loss Unchanged 49

     50 LO 5, 7 Reclassification of debt as equity; debt- Unchanged 50

     equity ratio

     *The solution to this problem is available on a transparency master.

     Status Q/P

    Research Present in Prior

    Problem Topic Edition Edition

     1 Transfer of property to investment Unchanged 1 company; gain recognition

     2 Using a note to avoid ? 357(c) Unchanged 2

     3 Avoiding the application of ? 351 rules Unchanged 3

     4 Shareholder/employee transfers to corporation: New

     alternative treatments

     5 Internet activity Unchanged 5

     6 Internet activity Modified 6

     7 Internet activity New

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    4-4 2013 Corporations Volume/Solutions Manual

    CHECK FIGURES

    26.a. $30,000 ordinary. 34. Kim ordinary income of $10,000 on 26.b. $30,000. receipt of stock; Azure‘s ? 162 26.c. $0. deduction of $40,000.

    26.d. $345,000. 35.a. Rhonda recognizes $185,000 gain.

    26.e. $300,000. 35.b. Rhonda still recognizes $185,000 gain.

    26.f. $20,000 ordinary. 36. Adam‘s recognized gain $10,000, $0 26.g. $0. stock basis; Swift‘s basis in property

    26.h. $20,000. $60,000.

    26.i. $90,000. 38. David‘s recognized gain $250,000, 26.j. $0. stock basis $200,000; White‘s basis in

    26.k. $300,000. land $450,000.

    27.a. $0. 39.a. Loss not recognized.

    27.b. $190,000. 39.b. Stock basis $395,000.

    27.c. $140,000. 39.c. Inventory $85,000; equipment

    27.d. $0. $130,000; trucks $135,000.

    27.e. $285,000. 39.d. Reduce Michael‘s stock basis to 27.f. $125,000 equipment; $10,000 patent. $350,000 rather than reducing Peach‘s 27.g. No change. basis in property.

    27.h. No change. 40. No gain recognized.

    28.a. None recognizes gain. 41.a. Alice no gain; Jane income $35,000.

    28.b. $260,000. 41.b. $25,000 in property from Alice;

    28.c. Clyde‘s transfer should be $50,000 in property from Jane;

     independent of the others. deduction of $35,000 for services.

    29. $650,000 recognized gain. 42.a. $35,000.

    30.a. Yes. 42.b. $50,000; capitalize.

    30.b. Dan recognizes no gain, basis in 43. Donna recognizes no gain; Jay

     Crane stock $60,000; Patricia ordinary income $65,000; basis

     recognizes income $50,000, basis in $30,000 in machinery.

     Crane stock $80,000. 44.a. $0.

    30.c. $60,000 in land; $30,000 in 44.b. $0.

     machinery. 44.c. $0 basis for building; $0 basis for 31. $250,000 recognized gain. inventory.

    32.a. Ann $0; Bob $15,000. 47.a. Ordinary loss $50,000; long-term

    32.b. Ann $150,000; Bob $45,000. capital loss $40,000.

    32.c. $150,000 basis in property Ann 47.b. Long-term capital loss $40,000.

     transferred; $30,000 basis in 48. Long-term capital loss $ 15 ,000.

     property Bob transferred; $15,000 49.a. $50,000.

     basis in organizational expenditures. 49.b. $25,000.

    33. Both Ann and Bob recognize 49.c. $5,000 ordinary loss; $25,000 capital

     gain/income. loss.

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     Corporations: Organization and Capital Structure 4-5

    DISCUSSION QUESTIONS

     1. Both ? 351 and ? 1031 provide for nonrecognition of gain or loss for certain transfers which

    otherwise would be taxable. The principle behind the nonrecognition of gain or loss is the

    concept of continuity of the taxpayer‘s investment. As there is no real change in the

    taxpayer‘s economic status, gain or loss should be postponed until such a change occurs

    (i.e., a sale to or a taxable exchange with outsiders). In addition, this approach can be justified

    under the wherewithal to pay concept discussed in Chapter 1. pp. 4-2 and 4-3

     2. Gain is recognized on a ? 351 transfer if the transferor receives ―boot‖ in the exchange

    (i.e., money or property other than stock). Gain is recognized to the extent of the lesser of the

    gain realized or the boot received (the amount of money and the fair market value of the other

    property received). The nature of any gain recognized is characterized by reference to the type

    of asset transferred. Loss is never recognized in a ? 351 transaction. pp. 4-3 and 4-4

     3. The definition of property for purposes of ? 351 is comprehensive. Besides cash and fixed

    assets, unrealized receivables (cash basis taxpayer), secret processes and formulas, and secret

    information (in the general nature of a patentable invention) are considered property.

    However, services rendered are specifically excluded from the definition of property. pp. 4-4

    and 4-5

     4. The Regulations state that ―stock‖ does not include stock rights and stock warrants. [Reg.

    ? 1.351-1(a)(1)(ii).] Although the term ―stock‖ does include preferred stock, it does not

    include nonqualified preferred stock. The latter possesses many of the attributes of debt and is,

    therefore, treated as boot for gain recognition purposes. But in meeting the control test,

    nonqualified preferred stock is treated as stock. p. 4-5

     5. Yes. A 10-year note as well as cash, securities, and other property constitute boot under ? 351.

    Nonqualified preferred stock is also treated as boot because this type of stock has

    characteristics that are similar to debt. Therefore, its receipt is treated the same as the receipt

    of securities. p. 4-5

     6. The control requirement specifies that the person or persons transferring property to the

    corporation must own, immediately after the transfer, stock possessing at least 80% of the

    total combined voting power of all classes of stock entitled to vote and at least 80% of the

    total number of shares of all other classes of stock of the corporation. Control may apply to a

    single person or to several taxpayers if they are all parties to an integrated transaction. pp. 4-5

    and 4-7

     a. If a shareholder renders services to the corporation for stock, the control requirement

    can be lost as to the other shareholders. The shareholder rendering services, absent any

    additional transfer of property for stock, cannot qualify under ? 351 because services

    rendered are not ‗‗property. For example, if Adam transfers property to Brown

    Corporation for 50% of the stock and Bonnie receives 50% of the stock for services

    rendered, the transaction is taxable to both Adam and Bonnie. Bonnie is not a member

    of the group transferring property, and Adam receives only 50% of the stock. The

    post-control requirement is not met. Example 9

     b. If a shareholder renders services and transfers property to the corporation for stock,

    the shareholder is treated as a member of the transferring group although taxed on the

    value of the stock received for services. Consequently, in part a. above, if Bonnie also

    transferred property, the transaction would qualify under ? 351. To be a member of the

    group and to aid in qualifying all transferors under the 80% test, the person

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4-6 2013 Corporations Volume/Solutions Manual

    contributing services must transfer property having more than a relatively small value

    in relation to the services he or she performed. Examples 10 and 11

     c. If a shareholder has only momentary control of the stock of the corporation after the

    transfer, these shares do not count in determining control if the plan for ultimate sale

    or other disposition of the stock existed before the exchange. Example 8

     d. If a long period of time elapses between the transfers of property by different

    shareholders, the control requirement may be lost as to the later transfers because there

    is no transferring group. The Regulations affirm that an exchange involving more than

    one person does not necessarily require simultaneous transfers by the persons involved,

    but there must be a transaction in which the rights of the parties were previously

    defined and the transaction occurs shortly thereafter. Transfers that involve a long

    lapse of time should be properly documented as part of a single plan. Contrast

    Examples 5 and 6

     7. In the proposed incorporation of ‗‗The Perfect Cat,‘‘ the following issues arise:

     Will the transfer be subject to the tax-free treatment of ? 351?

     Will Kathleen receive stock in exchange for property transferred?

     If Kathleen is not a transferor of property, how will her receipt of stock be classified for

    tax purposes? In other words, is the receipt of stock a gift from her mother, or is it in

    exchange for services rendered to the business?

     If Kathleen is not a transferor of property and she receives stock from the corporation, will

    the transaction preclude ? 351 treatment for Nancy?

     What will be the basis in the stock received by Nancy and Kathleen?

     What will be the basis of the property in the hands of the corporation?

     What will be the amount of income recognized by Kathleen and the deduction allowed if

    the transfer of stock to Kathleen is for services rendered?

     What will be the gift tax consequences if the transfer of stock by Nancy to Kathleen is

    considered a gift? Chapter 18

     Examples 6 and 7 and relevant discussion

     8. If the real estate is appreciated, either approach results in gain being recognized by Charlie.

    The receipt of bonds (i.e., securities) results in a sale of the real estate, and the realized gain is

    recognized. The mortgage scenario yields a like consequence. One possible alternative is to

    use preferred stock. This could give Charlie more security than common stock, particularly if

    the preferred stock has a liquidation preference. To be nontaxable, however, the transfer

    should be tied to the original incorporation of the business. Otherwise, the 80% control

    requirement might not be satisfied. In addition, to avoid being considered boot, the preferred

    stock received must not meet the definition of nonqualified preferred stock. pp. 4-5 and 4-9

     9. It appears that the exchange qualifies under ? 351. Control is not lost if stock received by a

    shareholder in a ? 351 exchange is sold or given to others shortly after the exchange unless

    there was a binding agreement for such transfer. Assuming the subsequent transfer is

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     Corporations: Organization and Capital Structure 4-7

    completely donative, it should be disregarded for purposes of the control requirement.

    Example 8

    10. A transferor who receives stock for both property and services can be included in the control

    group if the value of property transferred is not relatively small in comparison to the value of

    the services rendered. The IRS generally requires that the value of the property transferred be

    at least 10% of the value of the services provided. If the value of the property transferred is

    less than this amount, the IRS will not issue an advance ruling that the exchange meets the

    requirements of ? 351. pp. 4-7 and 4-8

    11. a. Ted is attempting to meet the control requirements of ? 351. In order to qualify as a

    nontaxable exchange under ? 351, the person or persons transferring property to a

    corporation for stock must own immediately after the transfer, stock possessing at

    least 80% of the total combined voting power of all classes of stock entitled to vote

    and at least 80% of the total number of shares of all other classes of stock of the

    corporation. Unless Peggy joins Ted in the transaction, he will not meet the control

    requirement and must recognize gain of $80,000 on the transfer.

     b. A transferor‘s interest cannot be counted if the stock received is of relatively small

    value in comparison to the value of that already owned and the primary purpose of the

    transfer is to qualify other transferors for ? 351 treatment. For advance ruling purposes,

    the IRS treats the amount transferred as not being relatively small in value if it is equal

    to, or in excess of, 10% of the fair market value of the stock already owned by that

    person. Thus, if the one share of stock transferred to Peggy is less than 10% of the

    stock already owned by Peggy, Peggy‘s interest probably is not counted. Ted then is

    taxed on the transfer as he does not have an 80% interest in Robin Corporation.

     pp. 4-8 and 4-25

    12. The shareholder‘s basis in the stock received is reduced by the amount of the liabilities

    assumed by the corporation. p. 4-9

    13. Libbie would probably not be taxed as to the liabilities assumed by the corporation. Section

    357(b) provides that if the principal purpose of the assumption of liabilities by the corporation

    is to avoid tax or if there is no bona fide business purpose behind the exchange, the liabilities

    are treated as money received and taxed as boot. The bona fide business purpose requirement

    causes difficulty if the liability is taken out shortly before the property is transferred and the

    proceeds are utilized for personal purposes. This is not the case here, since the mortgage

    proceeds are used to improve the property transferred to the corporation. p. 4-9 14. If both ?? 357(b) and (c) apply to the same transfer, ? 357(b) predominates. This could be

    significant because ? 357(b) does not create gain, as does ? 357(c), but merely converts the

    liabilities to boot. Consequently, the realized gain limitations continue to apply to ? 357(b)

    transactions. p. 4-11

    15. a. If a shareholder transfers a liability to the corporation along with property, the basis in

    the stock received is reduced by the amount of the liability transferred to the

    corporation. However, the transfer of the liability to the corporation will not produce

    gain to the transferor-shareholder (unless the liability exceeds the basis of the assets

    transferred or there was a tax avoidance scheme or no bona fide business purpose

    underlying the transfer).

     b. In the event a shareholder transfers property with an aggregate adjusted basis in excess

    of its fair market value, the result reached in c. below may need to be modified.

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4-8 2013 Corporations Volume/Solutions Manual

    Section 362(e)(2) generally requires the corporation to step down the carryover basis

    for the property by the amount of the net built-in loss. However, if the shareholder and

    the corporation elect, the basis reduction can be applied instead against the

    shareholder‘s stock basis.

     c. The shareholder‘s basis in the property transferred becomes the basis of the stock

    received, increased by the amount of gain recognized to the shareholder and decreased

    by the fair market value of boot received and the amount of liabilities transferred to

    the corporation.

     d. If a shareholder receives ‗‗other property‖ (boot) in addition to stock in a ? 351

    transfer, gain is recognized to the shareholder to the extent of the lesser of the gain

    realized or the fair market value of the boot received. Section 358(a) provides that the

    basis of stock received is the same as the basis the shareholder had in the property

    transferred, increased by any gain recognized on the exchange and decreased by boot

    received.

    Figure 4.1

    16. If the services performed constitute an ordinary and necessary business expense (e.g., the

    shareholder serves as the office manager), the corporation may deduct the value of the stock

    issued. Otherwise, the cost must be capitalized. For example, accounting or legal services

    provided by a shareholder in organizing the corporation must be capitalized. Compare

    Examples 24 and 25

    17. a. Bluebird Corporation‘s holding period in the property includes Jorge‘s holding period,

    regardless of the character of the property in Jorge‘s hands.

     b. The holding period of Jorge‘s stock includes the holding period of the property

    transferred to Bluebird if it was either a capital or ? 1231 asset in Jorge‘s hands. If any

    other type of property is transferred, Jorge‘s holding period for the stock begins on the

    day after the exchange. p. 4-16

    18. The basis rules are not the same for property acquired from a shareholder and for property

    acquired from a nonshareholder. The basis of property received by a corporation from a

    shareholder as a capital contribution generally is the basis in the hands of the shareholder

    although it is subject to a downward adjustment when loss property is contributed. The basis

    of property transferred to a corporation by a nonshareholder as a contribution to capital is zero.

    pp. 4-16 and 4-17

    19. The advantages of utilizing debt are numerous. Interest on debt is deductible by the

    corporation, while dividend payments are not. Further, the shareholders are not taxed on the

    receipt of loan repayments unless they exceed basis. With respect to equity, as long as a

    corporation has earnings and profits it is difficult to withdraw the investment without

    triggering dividend income. However, since 2003, individual investors may prefer dividend

    income to interest income. Dividend income is taxed using preferential capital gains rates

    while interest income is taxed as ordinary income. pp. 4-18 and 4-19

    20. a. If a loan is on open account, it is more easily characterized as a contribution to capital

    than if evidenced by a note.

    b. If a loan is payable on demand (i.e., it does not have a definite maturity date), it

    appears more like a contribution to capital.

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     Corporations: Organization and Capital Structure 4-9

    c. If a corporation has not made timely payments on a loan with a definite maturity date,

    it carries the attributes of a contribution to capital. An individual‘s failure to insist

    upon timely repayment (or satisfactory renegotiation) indicates that the repayment

    terms extend beyond the stated maturity date.

    d. If repayments are contingent upon earnings, the likelihood is a contribution to capital.

    e. When debt and equity obligations are held in the same proportion, the debt is more

    likely to be classified as equity. Further, funds used to acquire the business‘s operating

    assets are generally obtained through equity investments.

    f. Thin capitalization occurs when there is a high proportion of shareholder debt relative

    to shareholder equity. Whether a shareholder debt to shareholder equity ratio of 5:1 is

    excessive depends on the facts of the particular situation. In certain cases, courts have

    held a debt-equity ratio of approximately this proportion not to be excessive.

    pp. 4-19 and 4-20

    21. If ? 1244 does not apply, worthless stock held as an investment produces a capital loss as of

    the last day of the taxable year in which the stock becomes worthless. The burden of proving

    complete worthlessness is on the taxpayer claiming the loss. No deduction is allowed for a

    mere decline in value. However, if stock is not a capital asset (e.g., stock held for resale by a

    broker), worthlessness produces ordinary loss. pp. 4-20 and 4-21

    22. If a shareholder lends money to a corporation in his or her capacity as an investor, any

    resulting bad debt generally is classified as nonbusiness. However, if the loan is made in some

    capacity that qualifies as a trade or business, the shareholder-creditor can incur a business bad

    debt. Employee status is a trade or business, and a loss on a loan made to protect the

    shareholder‘s position as an employee qualifies for business bad debt treatment.

     Shareholders also may receive business bad debt treatment if they are in the trade or business

    of lending money or of buying, promoting, and selling corporations. The ―dominant‖ or

    ―primary‖ motive for making the loan controls the classification of the loss.

     pp. 4-21 and 4-22

    23. a. No deduction is allowed for a mere decline in value of property. A deduction may be

    taken as a loss from the sale or exchange of a capital asset on the last day of the

    taxable year in which stock becomes completely worthless. [? 165(g)(1)] Here the

    stock is not completely worthless.

     b. No deduction is permitted for a loss on a sale of property to a related party under

    ? 267(a)(1). For this purpose, however, Nelson‘s aunt is not considered to be a related

    party. See ?? 267(b)(1) and (c)(4). Therefore, Nelson may deduct a loss in this case,

    since it is like a sale to any other unrelated third party. Loss is established through a

    sale or exchange.

     c. Nelson may deduct an ordinary loss only if the stock is not a capital asset or if it is

    ? 1244 stock. If Nelson was a broker and the stock was held for resale to his customers,

    he would have an ordinary loss. Normally, however, stock is held as investment

    property and is a capital asset. In that case, the loss would be a capital loss unless

    ? 1244 applies.

     d. No deduction is permitted for a loss on a sale of property to a related party. ? 267(a)(1)

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4-10 2013 Corporations Volume/Solutions Manual

     e. Nelson may deduct a loss on a sale to a third party. Loss is established through a sale

    or exchange.

     pp. 4-20 and 4-21

    24. Keith is attempting to enjoy the benefits of gain deferral and, at the same time, avoid the loss

    deferral aspects of ? 351. In selling the loss assets for cash, instead of exchanging them for

    stock, a taxable event results, and losses can be recognized. However, the plan probably will

    not succeed. Because the sale is so close in time to the formation of the corporation, the IRS

    would collapse the sale and take the approach that the transfer of the loss assets also falls

    under ? 351.

     But even if the sale could be disassociated from ? 351, the loss disallowance rules of ? 267

    would apply to disallow the loss. Section 267 disallows a loss deduction for exchanges

    between a shareholder and a corporation in which the shareholder owns more than 50% in

    value of the stock. pp. 4-24 and 4-25

    25. Leasing some property to a controlled corporation may be a more attractive alternative than

    transferring ownership. Leasing provides the taxpayer with the opportunity of withdrawing

    money from the corporation without the payment being characterized as a dividend. If the

    property is donated to a family member in a lower tax bracket, the lease income can be shifted

    as well. If the depreciation and other deductions available in connection with the property are

    in excess of the lease income, the taxpayer would retain the property until the income exceeds

    the deductions. p. 4-26

    PROBLEMS

    26. a. $30,000 of ordinary income (compensation income).

     b. $30,000.

     c. $0. Rod may not recognize the realized loss of $45,000 because such losses are

    disallowed by ? 351.

     d. $345,000 (basis of property contributed). Because Rod contributed property with a

    built-in loss, the basis of the equipment to the corporation (see part e. below) generally

    cannot exceed its fair market value. However, at the election of both Rod and Zelcova

    Corporation, Zelcova may take a carryover basis of $345,000 if Rod accepts a basis in

    his stock of $300,000. Rod may be willing to take a lower basis if he plans to hold the

    stock for a long period of time.

     e. $300,000. Because Rod contributed property with a built-in loss, the basis of the

    equipment to the corporation generally cannot exceed its fair market value. However,

    at the election of both Rod and Zelcova Corporation (see part d. above), Zelcova may

    take a carryover basis of $345,000 if Rod accepts a basis $300,000. The election may

    be worthwhile if Zelcova plans to sell the equipment soon or needs additional

    depreciation deductions.

     f. $20,000 of ordinary income (related to accounts receivable).

     g. $0 [$0 (basis of unrealized accounts receivable) + $20,000 (income recognized)

    $20,000 (boot received)].

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