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:
Basis/FMV
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 Summary
This solution prepares a schedule showing the the tax consequences of transactions such as accounts receivables, machinery, and capital assets.
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ANSWERS
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 ...
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