b. Compute the gain or loss recognized by SWS Inc. c. Compute the basis of the stock received by F and V. d. Compute the bases of the assets received by SWS Inc. 2-31 Section 351 and Boot. X Corporation was formed several years ago by Q and R to operate a custom T-shirt shop in Dayton. Each received 50 shares of stock. This year, Q and R decided to expand and bring in S,T, and U, who operated a similar shop in Toledo. To this end, the following investments were made by the new and existing shareholders. a. Does the transaction qualify for 351 treatment? For the remaining questions, assume the transaction is eligible for 351 treatment. b. Compute the gain or loss recognized by S,T, and U. c. Compute the basis of the stock received by S,T, and U. d. Compute the bases of the assets received by the corporation. 2-32 Corporate Formation-Boot. This year, E, H, and K decided to organize EHK, Inc. They received stock in exchange for the following asset contributions to the corporation: 27 Corporate Formation-Services. This year, F and G decided to organize FG, Inc. They received stock in exchange for the following asset contributions to the corporation: In addition, services were performed in exchange for 30 shares of stock worth $30,000. Compute (1) each transferor's recognized gain or income, (2) each transferor's basis in the stock, and (3) FG's basis in the assets for each of the following situations. a. Y performed the services involved in the incorporation of FG. b. Y performed the services two years after F and G made their contributions. c. F performed the services involved in the incorporation of FG. d. G performed the services involved in the incorporation of FG. e. After being apprised of the tax consequences of the transfer described above, D is having second thoughts. How might any gain recognition above be avoided, assuming D still wants to contribute the land to the corporation? Section 357: Treatment of Liabilities. Each of the transfers below qualifies as a 351 transaction. In addition, the transferor is a cash basis taxpayer and the corporation assumes the liabilities involved in the transfer. For each transfer, compute the following: 1. Transferor's recognized gain. 2. Transferor's basis in the stock received. 3. Corporation's basis in each asset received. a. R transfers land worth $120,000 (basis of $60,000 ) and subject to a mortgage of $20,000 in exchange for stock worth $100,000. b. S transfers a crane worth $120,000 (basis of $40,000 ) and a $50,000 note payable secured by the crane in exchange for stock worth $70,000. c. Same facts as (b) above, except that the note was created two weeks before the transfer and S used the proceeds to take his wife on a vacation to the Virgin Islands. d. T transfers accounts receivable worth $12,000, dental equipment with a basis of $15,000, a $10,000 note payable secured by the equipment, and routine accounts payable for lab bills of $7,000 for stock worth $50,000. Section 351 and Depreciation Recapture. Several years ago, B transferred all of the assets of his sole proprietorship to a newly formed corporation in exchange for all of its stock. Among the assets contributed was equipment that B had purchased for $10,000 and for which he had claimed $2,000 of depreciation. Since the transfer, the corporation has claimed $1,500 of depreciation. This year, the corporation sold b. Compute the gain or loss recognized by SWS Inc. c. Compute the basis of the stock received by F and V. d. Compute the bases of the assets received by SWS Inc. 2-31 Section 351 and Boot. X Corporation was formed several years ago by Q and R to operate a custom T-shirt shop in Dayton. Each received 50 shares of stock. This year, Q and R decided to expand and bring in S,T, and U, who operated a similar shop in Toledo. To this end, the following investments were made by the new and existing shareholders. a. Does the transaction qualify for 351 treatment? For the remaining questions, assume the transaction is eligible for 351 treatment. b. Compute the gain or loss recognized by S,T, and U. c. Compute the basis of the stock received by S,T, and U. d. Compute the bases of the assets received by the corporation. 2-32 Corporate Formation-Boot. This year, E, H, and K decided to organize EHK, Inc. They received stock in exchange for the following asset contributions to the corporation: 27 Corporate Formation-Services. This year, F and G decided to organize FG, Inc. They received stock in exchange for the following asset contributions to the corporation: In addition, services were performed in exchange for 30 shares of stock worth $30,000. Compute (1) each transferor's recognized gain or income, (2) each transferor's basis in the stock, and (3) FG's basis in the assets for each of the following situations. a. Y performed the services involved in the incorporation of FG. b. Y performed the services two years after F and G made their contributions. c. F performed the services involved in the incorporation of FG. d. G performed the services involved in the incorporation of FG. e. After being apprised of the tax consequences of the transfer described above, D is having second thoughts. How might any gain recognition above be avoided, assuming D still wants to contribute the land to the corporation? Section 357: Treatment of Liabilities. Each of the transfers below qualifies as a 351 transaction. In addition, the transferor is a cash basis taxpayer and the corporation assumes the liabilities involved in the transfer. For each transfer, compute the following: 1. Transferor's recognized gain. 2. Transferor's basis in the stock received. 3. Corporation's basis in each asset received. a. R transfers land worth $120,000 (basis of $60,000 ) and subject to a mortgage of $20,000 in exchange for stock worth $100,000. b. S transfers a crane worth $120,000 (basis of $40,000 ) and a $50,000 note payable secured by the crane in exchange for stock worth $70,000. c. Same facts as (b) above, except that the note was created two weeks before the transfer and S used the proceeds to take his wife on a vacation to the Virgin Islands. d. T transfers accounts receivable worth $12,000, dental equipment with a basis of $15,000, a $10,000 note payable secured by the equipment, and routine accounts payable for lab bills of $7,000 for stock worth $50,000. Section 351 and Depreciation Recapture. Several years ago, B transferred all of the assets of his sole proprietorship to a newly formed corporation in exchange for all of its stock. Among the assets contributed was equipment that B had purchased for $10,000 and for which he had claimed $2,000 of depreciation. Since the transfer, the corporation has claimed $1,500 of depreciation. This year, the corporation sold