Facts Mr A, a cash basis taxpayer, transferred the assets to a existing corporation which is wholly owned by Mr A In exchange for these assets, Mr A received $50,000 cash and stock with a fair market value of $180,000 The assets transferred to the corporation are as followed Adj Basis Deprec Taken potentially FMV Assets at transfer date Subject to recapture Date of Transfer Acct receivable 0 0 10,000 Land (1231 asset) 50,000 0 75,000 Building (1250 asset) 50,000 15,000 70,000 Machinery(1245 asset) 50,000 25,000 25,000 Inventory 50,000 0 70,000 Acct Payable 0 0 (20,000) Total 200,000 40,000 230,000 Discussion Questions How much gain or loss must Mr A recognize on the transfer What is the character (ordinary income or Capital) of any gain or loss recognized How much gain or loss, if any, must a corporation recognize upon the receipt of the assets of the sole proprietorship in exchange for the corporations stock What is As basis in the corporate stock What is the corporations basis in each asset it receives Mr A was depreciating the building and machinery using MACRS Can the new corporation continue to use these methods to depreciate these assets Must the transferee corporation use Mr As taxable year, or may the corporation adopt a different taxable year If permitted, how would the corporation adopt a different taxable year

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Posted on May 17, 2021

Facts: Mr. A, a cash-basis taxpayer, transferred the assets to a existing corporation which is wholly owned by Mr. A. In exchange for these assets,

Facts: Mr. A, a cash-basis taxpayer, transferred the assets to a existing corporation which is wholly owned by Mr. A. In exchange for these assets, Mr. A received $50,000 cash and stock with a fair market value of $180,000. The assets transferred to the corporation are as followed:

Adj Basis Deprec. Taken potentially FMV

Assets at transfer date Subject to recapture @Date of Transfer

Acct receivable 0 0 10,000

Land (1231 asset) 50,000 0 75,000

Building (1250 asset) 50,000 15,000 70,000

Machinery(1245 asset) 50,000 25,000 25,000

Inventory 50,000 0 70,000

Acct Payable -0- 0 (20,000)

Total 200,000 40,000 230,000

Discussion Questions:

How much gain or loss must Mr. A. recognize on the transfer? What is the character (ordinary income or Capital) of any gain or loss recognized?

How much gain or loss, if any, must a corporation recognize upon the receipt of the assets of the sole-proprietorship in exchange for the corporation’s stock?

What is A’s basis in the corporate stock?

What is the corporation’s basis in each asset it receives?

Mr. A was depreciating the building and machinery using MACRS. Can the new corporation continue to use these methods to depreciate these assets?

Must the transferee corporation use Mr. A’s taxable year, or may the corporation adopt a different taxable year? If permitted, how would the corporation adopt a different taxable year?

Step by Step Solution

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Step: 1

I Mr A must recognize a gain of 30 000 on the transfer II The gain is ordinary income b Is Mr A s basis in his stock the same as his basis in the asse... blur-text-image