EXAMPLE 11: Each of the following transactions is cumulative over a period of years. For each transaction, determine the tax effect.

TRANSACTION #1 Lauren forms a corporation with a transfer of land with a MV of $100 and a basis to her of $10 in exchange for 100 shares of stock (100 shares outstanding).

What is Laurens recognized gain? (2 points)

What is Laurens stock basis? (2 points)

TRANSACTION #2 Lauren an accountant who is a cash basis taxpayer, transfers the following to the corporation: equipment (market value of $100, basis of $10), accounts receivable of $100, and cash of $100. She receives 300 shares of stock (400 shares outstanding).

What is Laurens recognized gain? (2 points)

What is Laurens stock basis? (2 points)

TRANSACTION #3 Carson transfers land with a MV of $100 and a basis of $10. He receives 100 shares of stock (500 shares outstanding).

Write a memo to Carson advising him how to get a more favorable tax treatment. Hint: think of the 80% rule? (4 points)

TRANSACTION #4 Carson, an attorney, provides legal services to the corporation which are valued at $200. In the same transaction, Lauren transfers $200 cash to the corporation. Each receives 100 shares of stock (700 shares outstanding).

Question: Does Section 351 apply? Does anybody care? Why not? (4 points)

TRANSACTION #5 Lauren and Carson both transfer land in exchange for 150 shares of stock (1,000 shares outstanding). Both parcels of land are valued at $300 and are subject to a mortgage of $20 which will be assumed by the corporation. Lauren has a basis in her property of $15 and Carson has a basis in his property of $30.

Laurens recognized gain (2 points)

Laurens stock basis (2 points)

Carsons recognized gain (2 points)

Carsons stock basis (2 points)