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    Tax Consequences of Incorporation

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    T was one of several individuals who transferred property to a new corporation in a section 351 exchange.
    T transferred the following property:
    Accounts receivable 0/20,000
    Machinery (D/recap = $10,000) 20,000/50,000
    Capital Asset (LT H/P) 50,000/30,000
    Total 70,000/100,000

    As part of the exchange, the corporation assumed T's business liabilities in the amount of $25,000 and distributed T the following:
    >$20,000 worth of securities
    >$41,250 worth of common stock
    >13,750 worth of preferred stock

    Prepare a schedule showing the tax consequences to T and to the transferee corporation of the above transaction.

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    Solution Preview

    Since the transfer qualifies under section 351 exchange, then I assumed that the preferred stock is also qualified. Furthermore, since the exchange resulted to T, the transferor, receiving two classes of stock, common and preferred, and securities, then the basis of the property transferred is allocated among all the stocks and securities received by T in ...

    Solution Summary

    This solution prepares a schedule showing the the tax consequences of transactions such as accounts receivables, machinery, and capital assets.