Question
Sam, Polly, Carmen, and Jen form Silver Corporation with the following consideration. Name Contributes Basis FMV #of shares Notes Sam Inventory $30,000 $90,000 30 Polly
Sam, Polly, Carmen, and Jen form Silver Corporation with the following consideration.
Name Contributes Basis FMV #of shares Notes
Sam Inventory $30,000 $90,000 30
Polly Equipment $45,000 $99,000 30 (1)
Carmen Installment Note $15,000 $90,000 30 (2)
Jen Land $40,000 $30,000 10
Notes:
(1) Polly also receives $9,000 cash. (2) Carmen received the note in exchange for land with a $15,000 basis that she sold last year. The note is payable over a six year period beginning in two years, at $1,450 per month including interest.
Questions:
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Does IRC 351 apply to this exchange. If so, why?
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What are the tax consequences (gain or loss realized, gain or loss recognized, basis and
holding period in the stock received) to each of the transferors? Note: as to Carmen, see
IRC 453B(a); Reg. 1.4539(c)(2); Prop. Reg. 1.453B1(c).
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What are the tax consequences (gain or loss recognized, basis, and holding period in each of the assets received) to the corporation?
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Assume all the same facts except that Jen transfers two parcels of unimproved land (Parcel #1 and Parcel #2), each with a value of $15,000. Jens basis in Parcel #1 is $20,000 and her basis in Parcel #2 is $13,000. What is the tax result to Jen and the corporation?
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There was a $60,000 gain inherent in the inventory transferred by Sam. If Silver Corporation later sells the inventory for $90,000, and Sam sells his stock for $90,000, how many times will that $60,000 gain be recognized? Is there any justification for that result?
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