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Tax Accounting Problems

1) IRS 351- Simultaneous transfers

Albert Able, Brenda Baker, Carla Cox, and Dan Davis are all shareholders of Corporation A. Corporation A has 100 shares if capital stock outstanding. Able, Baker, and Cox each transferred property on February 11, 20*4 and each received 25 shares of capital stock. Dan Davis transferred property on July 17, 20*4 and received 25 shares of stock. Did the transactions satisfy the 80% control test? Explain.

2) IRC 351 - Nominal transfers
Albert Able owns all of the outstanding capital stock (80 shares, FMV $200,000) of Corporation A and desires to bring Betty Baker into the corporation. Betty Baker transfers an asset (FMV $ 50,000/ Basis $ 5,000) in exchange for 20 shares of capital stock. Is the control test satisfied? Explain.

3) IRC 351 - Loss of control
Anne Able incorporates her sole proprietorship by transferring assets in exchange for 100% of the corporate stock. Anne Able then gifts 14% to her son and sells 21% to a third party. Is the control test satisfied?

4) IRC 351 - Disproportion
Albert Able and his son create Corporation A. Albert Able transfers an asset (FMV $800) and receives 40 shares of capital stock. The son transfers an asset (FMV $200) and receives 60 shares of capital stock. Will IRC 351 apply?

5) IRC 351 - Boot
Albert Able and Brenda Baker create Corporation A. Albert Able transfers $ 4,000 cash and receive 40 shares of capital stock. Brenda Baker transfers an asset (FMV $7,000, Basis $2,000) and receives 60 shares of capital stock and $1,000 cash. Does IRC 351 govern? Explain.

6) IRC 351 - Boot
Albert Able transfers three assets in an IRC 351 exchange.
The total market value of the assets is $200,000 and the total basis is $170,000. Albert Able receives capital stock (FMV $160,000) and cash of $40,000. Does IRC 351 govern?
Explain.

Solution Preview

1) IRS 351- simultaneous transfers

Albert Able, Brenda Baker, Carla Cox, and Dan Davis are all shareholders of Corporation A. Corporation A has 100 shares if capital stock outstanding. Able, Baker, and Cox each transferred property on February 11, 20*4 and each received 25 shares of capital stock. Dan Davis transferred property on July 17, 20*4 and received 25 shares of stock. Did the transactions satisfy the 80% control test? Explain.

No, it didn't because it failed to satisfy the "...immediately after the exchange such person or persons are in control of the corporation..." clause of the 80% control test definition (the first 3 people had 75% which is not control). It's worth mentioning here that if all of them agreed to transfer property in exchange for stocks beforehand (predetermined agreement), then it doesn't really matter that 3 of them did the transfer together ...

Solution Summary

The accounting questions looks at simultaneous transfers, nominal transfers, loss of control, disproportion and capital stock.

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