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Please help with my tax homework, I am unsure on how to complete the problems. Tax Problem #1 Carrot Corp, Inc Carrot Corp, Inc. owns
Please help with my tax homework, I am unsure on how to complete the problems.
Tax Problem #1 Carrot Corp, Inc Carrot Corp, Inc. owns and operates a carrot farm. Shawn formed Carrot Corp by contributing farmland with an adjusted basis of $95,000 in exchange for 100 shares of stock in 1980. Shawn owns the only stock in Carrot Corp. Shawn made this transaction pursuant to Section 1244. At the time of the transaction, the farm was worth $140,000. In 1990, Shawn gave 20 shares to his son Andrew, and ten shares to his son Brian. Brian and Andrew both worked in the management of Carrot Corp. At that time, the value of the gifts were $27,000 each. Shawn correctly did not pay a gift tax on the shares. His main reason for the gift was to reward his sons with equity in the company for their great work. In addition, he also wanted to place some of the taxes from Carrot Corp dividends on his sons. In 2005, Andrew and Brian got into a fight over diversifying the farmland to make additional variations in produce. The fights became so tense that they all decided to buy out Brian's stock in Carrot Corp. Thus, Carrot Corp purchased Brian's stock in exchange for one of the smaller fields that Brian could run by himself. Brian is no longer involved in Carrot Corp. The field given to Brian was originally purchased for $10,000. The present value of the shrubbery and entire field is $12,000. Brian's 20 shares were also worth $12,000 at the time of the transfer. During the year of the transfer, Carrot Corp's accumulated earnings were $80,000. Problems 1. What was Brian's basis in the shares of stock? 2. What is Brian's basis in the field? 3. Calculate the consequences to Brian: A. If the transfer is treated as a redemption B. If the transfer is treated as a dividend In answering the above questions, state which section(s) of the code apply to the transaction; be thorough in showing a detailed step by step explanation of how you performed the calculations; and finally, provide the final calculation and answer to the
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