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Tax consequences of incorporation

1. Pete pays $10,000 for 100 shares of stock in Fast Eddies, Inc. Briefly discuss the tax consequences of this transaction for Pete and Fast Eddies, Inc.

2. Pete bought land ten years ago for $2,000. Today the land has a value of $10,000 and Pete transfers it to Fast Eddies, Inc. for 100 shares in Fast Eddies, Inc. Briefly discuss the tax consequences of this transaction for Pete and Fast Eddies, Inc.

3. Three years after Pete bought his stock in Fast Eddies, Inc. for $10,000, he sold it for $12,245. Briefly discuss the tax consequences of this transaction for Pete and Fast Eddies, Inc.

4. If in 2 above all of the requirements of Section 351 are met, briefly discuss the tax consequences of this transaction for Pete and Fast Eddies, Inc.

5. Briefly describe the step-transaction doctrine applied under Section 351.

Solution Preview

Question 1
There is no tax consequence for both Pete and Fast Eddies, Inc. The transaction is 100% exchange of cash for ownership interest.

Question 2
The transaction has no tax impact on Fast Eddies, Inc., but Pete has ...

Solution Summary

The solution examines tax consequences of incorporation. The step-transaction doctrine applied under section 351 is described.

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