Question
QUESTION 13 Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non-recourse mortgage of $2,000.
QUESTION 13
-
Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non-recourse mortgage of $2,000. Zs adjusted basis for this building is $1,500. All of Zs stock is owned by C, whose basis for his stock in Z is $500. Z had 1,000 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Assume that the corporate tax payable by Z on $3,500 gained is $1,250 and on $3,000 gained is $1,000. Z sells the building, subject to the mortgage, to D in the current year for $3,000 in cash. Z then liquidates, distributing all of the cash (remaining after paying its taxes) to C in cancellation of Cs stock in the current year.
Same facts as above, except that D agrees to pay Z an additional contingent amount for the building in order to induce Z to sell. The gross fair market value of Zs property is actually $5,000. D also agrees to give a Z contingent right to receive from D an additional $2,500 over 10 years if D earns profits from the building in excess of profits historically earned.
a. If the transaction is held open, Z will recognize $3,500 gain on the sale.
b. Upon collecting additional amounts from D, C will recognize additional capital gain.
c. Upon collecting additional amounts from D,. Z might also be expected to recognize additional gain, although Bittker & Eustice apparently take a contrary position.
d. None of the above.
e. All of the above, except D.
2 points
QUESTION 14
-
Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non-recourse mortgage of $2,000. Zs adjusted basis for this building is $1,500. All of Zs stock is owned by C, whose basis for his stock in Z is $500. Z had 1,000 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Assume that the corporate tax payable by Z on $3,500 gained is $1,250 and on $3,000 gained is $1,000. Z sells the building, subject to the mortgage, to D in the current year for $3,000 in cash. Z then liquidates, distributing all of the cash (remaining after paying its taxes) to C in cancellation of Cs stock in the current year.
Same facts as above, except that C contributes to Z securities with a basis of $5,000 and a value of $1,500 in the preceding year so that Cs stock basis increases to $5,500. Z then sells the securities to D for $1,000 along with the building as previously sold.
a. Z will recognize a $4,000 loss on the sale of the securities.
b. Z will recognize a $500 loss on the sale of the securities under 336(d)(2), even if the presumption of tax avoidance purpose is rebutted.
c. Neither of the above.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started