Problem 18-30 (LO. 1, 3)

Dan Knight and Patricia Chen, who are good friends, form Crane Corporation. Dan transfers land (worth $200,000, basis of $60,000) for 50% of the stock in Crane. Patricia transfers machinery (worth $150,000, adjusted basis of $30,000) and provides services worth $50,000 for 50% of the stock.

a. Will the transfers qualify under 351? Yes , because all of Patricia's stock is counted in determining control since the property she transferred has more than a nominal value in comparison to the value of the services rendered.

Feedback

Nonrecognition treatment for the property transferors may be lost if "too much" stock is transferred to persons who did not contribute property.

b. What are the tax consequences to Dan and Patricia? Dan recognizes no gain or loss on the transfer of the land. His basis in the Crane stock is $fill in the blank 968acd043fb4060_2. Patricia recognizes compensation income of $fill in the blank 968acd043fb4060_4 on the transfer. Patricia has a basis of $fill in the blank 968acd043fb4060_5 in her Crane stock.

Feedback

Correct

c. What is Crane Corporation's basis in the land and the machinery? Crane Corporation has a basis of $fill in the blank b50ac005405bfa2_1 in the land and a basis of $fill in the blank b50ac005405bfa2_2 in the machinery.

In addition, Crane either has a deduction of $fill in the blank b50ac005405bfa2_4 for the services provided by Patricia, or it will capitalize the $fill in the blank b50ac005405bfa2_5 as organizational costs .

Feedback

Correct

d. Enter the results of this transaction to Patricia on her Form 1040 (page 1). Assume Patricia is single, age 40, has no other income, and claims a standard deduction of $12,200 (for 2019).

She does not want $3 to go to the presidential election campaign. Enter all amounts as positive numbers.

Form 1040

Department of the TreasuryInternal Revenue Service (99) U.S. Individual Income Tax Return

2019

OMB No. 1545-0074

IRS Use Only

Filing Status Head of household (with qualifying person) (HOH)
Your first name and middle initial Patricia	Last name Chen		Your social security number 123-45-6789
If joint return, spouse's first name and middle initial	Last name		Spouse's social security number
Home address (number and street). If you have a P.O. box, see instructions.		Apt. no.	Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 to go to this fund. Checking a box below will not change your tax or refund.
City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions).
Foreign country name	Foreign province/state/country	Foreign postal code	If more than four dependents, see instructions and here

Standard Deduction	Someone can claim: None
Age/Blindness	You: None Spouse: None

Dependents (see instructions):		(2) Social security number	(3) Relationship to you	(4) if qualifies for (see instructions):
(1) First name	Last name			Child tax credit	Credit for other dependents

	1	Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .							1	fill in the blank 80d4190ca07704e_6
	2a	Tax-exempt interest . .	2a		b	Taxable interest. Attach Sch. B if required			2b
Standard Deduction for Single or Married filing separately, $12,200 Married filing jointly or Qualifying widow(er), $24,400 Head of household, $18,350 If you checked any box under Standard Deduction, see instructions.	3a	Qualified dividends . . .	3a		b	Ordinary dividends. Attach Sch. B if required			3b
	4a	IRA distributions . . . . .	4a		b	Taxable amount . . . . . . . . . .			4b
	c	Pensions and annuities	4c		d	Taxable amount . . . . . . . . . .			4d
	5a	Social security benefits	5a		b	Taxable amount . . . . . . . . . .			5b
	6	Capital gain or (loss). Attach Schedule D if required. If not required, check here . . .							6
	7a	Other income from Schedule 1, line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .							7a
	b	Add lines 1, 2b, 3b, 4b, 4d, 5b, 6, and 7a. This is your total income . . . . . . . . . . . .							7b	fill in the blank 80d4190ca07704e_7
	8a	Adjustments to income from Schedule 1, line 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . .							8a
	b	Subtract line 8a from line 7b. This is your adjusted gross income . . . . . . . . . . . . . .							8b	fill in the blank 80d4190ca07704e_8
	9	Standard deduction or itemized deductions (from Schedule A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .					9	fill in the blank 80d4190ca07704e_9
	10	Qualified business income deduction. Attach Form 8995 or Form 8995-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .					10
	11a	Add lines 9 and 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .							11a	fill in the blank 80d4190ca07704e_10
	b	Taxable income. Subtract line 11a from line 8b. If zero or less, enter -0- . . . . . . . . . . .							11b	fill in the blank 80d4190ca07704e_11

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

Cat. No. 11320B

Form 1040 (2019)