A Requirements a. b. Bryce Norwood transfers a building having a $60,000 FMV and a $40,000 adjusted basis to Chameleon Corporation. An advantage of the asset transfer under Sec. 351 is that Bryce can defer his $20,000 ($60,000 FMV - $40,000 adjusted basis) realized gain. What disadvantages accrue Chameleon as a result of the post-transfer aspects of the transaction? Assume the same facts as in Part a except that the building's FMV is instead $40,000 and its adjusted basis is $60,000. What tax disadvantage results from the transfer as presently structured? Are there any suggestions that you can offer to Bryce to improve his tax benefits? Explain why the basis of gain property that is contributed to a corporation in a Sec. 351 exchange is not equal to its FMV on the date of the exchange. Is the basis of the property that is contributed to the corporation adjusted when gain is recognized by the transferor? How would your answers to Part a change if Bryce Norwood transferred a $17,000 mortgage along with the land and received stock having a value less than the amount of the liability? C. d. Print Done a. Bryce Norwood transfers a building having a $60,000 FMV and a $40,000 adjusted basis to Chameleon Corporation. An advantage of the asset transfer under Sec. 351 is that Bryce can defer his $20,000 ($60,000 FMV - $40,000 adjusted basis) realized gain. What disadvantages accrue to Chameleon as a result of the post-transfer aspects of the transaction? O A. The building's basis in Chameleon Corporation's hands is its $40,000 basis in Bryce Norwood's hands. Chameleon's depreciation deduction is based on the building's $40,000 carryover basis instead of its $60,000 FMV. This basis difference causes Chameleon to deduct less depreciation per tax year than would be available if the building had been purchased for cash. If the building is later sold in a taxable transaction, using the carryover basis for the building may cause part or all of the $20,000 difference between the building's FMV and its tax basis that existed on Chameleon's acquisition date to be recognized as an increased gain by Chameleon. B. Chameleon may not deduct any depreciation until the gain is recognized by Bryce. C. The building's basis in Chameleon Corporation's hands is the FMV, $60,000. Chameleon's depreciation deduction is based on its $60,000 FMV. If the building is later sold in a taxable transaction, part or all of the $20,000 may cause depreciation recapture. D. The building's basis in Chameleon Corporation's hands is the FMV, $60,000. The depreciation will be calculated on the $60,000. But if the building is later sold in a taxable transaction, the $40,000 adjusted basis will be used to calculate a gain or depreciation recapture. This basis for the building may cause part or all of the $20,000 difference between the building's FMV and its tax basis that existed on Chameleon's acquisition date to be recognized as an increased gain by Chameleon. b. Assume the same facts as in Part a except that the building's FMV is instead $40,000 and its adjusted basis is $60,000. What tax disadvantage results from the transfer as presently structured? Are there any suggestions that you can offer to Bryce to improve his tax benefits? O A. His $20,000 realized loss is not recognized for tax purposes. Bryce Norwood must defer his $20,000 realized loss until he sells his stock in a taxable transaction. The building's basis in Chameleon Corporation's hands is $60,000. Norwood may have been better off to hold on to the building until the FMV increases. OB. His $20,000 realized loss is not recognized for tax purposes. Bryce Norwood must defer his $20,000 realized loss until he sells his stock in a taxable transaction. Norwood may have been better off to sell the building for cash so he could immediately recognize his tax loss. Such a sale may be subject to the limitations found in the Sec. 267(a) related party loss rules. O C. His $20,000 realized loss is recognized ratably over five years. Norwood may have been better off to sell the building for cash so he could immediately recognize his tax loss. Such a sale may be subject to the limitations found in the Sec. 267(a) related party loss rules. D. His $20,000 realized loss is recognized for tax purposes. The building's basis in Chameleon Corporation's hands is $40,000. As a result Chameleon will deduct less depreciation per tax year. Norwood may have been better off to defer the recognition of the loss, then Chameleon's basis would have been $60,000 and it would have a higher depreciation deduction per tax year. c. Explain why the basis of gain property that is contributed to a corporation in a Sec. 351 exchange is not equal to its FMV on the date of the exchange. Is the basis of the property that is contributed to the corporation adjusted when gain is recognized by the transferor? A. The basis of property that is contributed to a corporation in a Sec. 351 transaction is not increased to the property's FMV because the transaction is subject to the limitations found in Sec. 267 related party transactions. B. The basis of property that is contributed to a corporation in a Sec. 351 transaction is not increased to the property's FMV because recognition of the gain on the transaction is deferred until the property is sold or exchanged by the transferee corporation. A step-up in the property's basis occurs if the transferor recognizes part or all of the loss realized on the asset transfer. A step-down in basis occurs if the property's FMV is more than its adjusted basis. C. The basis of property that is contributed to a corporation in a Sec. 351 transaction is not increased to the property's FMV because recognition of the gain on the transaction is deferred until the property is sold or exchanged by the transferee corporation. In a loss situation, the loss is recognized immediately and the basis of the property equal to its FMV. OD. The basis of property that is contributed to a corporation in a Sec. 351 transaction is not increased to the property's FMV because recognition of the gain on the transaction is deferred until the property is sold or exchanged by the transferee corporation. A step-up in the property's basis occurs if the transferor recognizes part or all of the gain realized on the asset transfer. A step-down in basis occurs if the property's FMV is less than its adjusted basis. d. How would your answers to Part a change if Bryce Norwood transferred a $17,000 mortgage along with the land and received stock having a value less than the amount of the liability? Chameleon would Under the circumst leon, and what is Bryce's basis in the Chameleon stock? recognize a gain equal to the amount of the mortgage transferred. still recognize no gain on the transfer of the building. Amount Building's adjusted basis in the hands of Chameleon Bryce's basis in the Chameleon stock A Requirements a. b. Bryce Norwood transfers a building having a $60,000 FMV and a $40,000 adjusted basis to Chameleon Corporation. An advantage of the asset transfer under Sec. 351 is that Bryce can defer his $20,000 ($60,000 FMV - $40,000 adjusted basis) realized gain. What disadvantages accrue Chameleon as a result of the post-transfer aspects of the transaction? Assume the same facts as in Part a except that the building's FMV is instead $40,000 and its adjusted basis is $60,000. What tax disadvantage results from the transfer as presently structured? Are there any suggestions that you can offer to Bryce to improve his tax benefits? Explain why the basis of gain property that is contributed to a corporation in a Sec. 351 exchange is not equal to its FMV on the date of the exchange. Is the basis of the property that is contributed to the corporation adjusted when gain is recognized by the transferor? How would your answers to Part a change if Bryce Norwood transferred a $17,000 mortgage along with the land and received stock having a value less than the amount of the liability? C. d. Print Done a. Bryce Norwood transfers a building having a $60,000 FMV and a $40,000 adjusted basis to Chameleon Corporation. An advantage of the asset transfer under Sec. 351 is that Bryce can defer his $20,000 ($60,000 FMV - $40,000 adjusted basis) realized gain. What disadvantages accrue to Chameleon as a result of the post-transfer aspects of the transaction? O A. The building's basis in Chameleon Corporation's hands is its $40,000 basis in Bryce Norwood's hands. Chameleon's depreciation deduction is based on the building's $40,000 carryover basis instead of its $60,000 FMV. This basis difference causes Chameleon to deduct less depreciation per tax year than would be available if the building had been purchased for cash. If the building is later sold in a taxable transaction, using the carryover basis for the building may cause part or all of the $20,000 difference between the building's FMV and its tax basis that existed on Chameleon's acquisition date to be recognized as an increased gain by Chameleon. B. Chameleon may not deduct any depreciation until the gain is recognized by Bryce. C. The building's basis in Chameleon Corporation's hands is the FMV, $60,000. Chameleon's depreciation deduction is based on its $60,000 FMV. If the building is later sold in a taxable transaction, part or all of the $20,000 may cause depreciation recapture. D. The building's basis in Chameleon Corporation's hands is the FMV, $60,000. The depreciation will be calculated on the $60,000. But if the building is later sold in a taxable transaction, the $40,000 adjusted basis will be used to calculate a gain or depreciation recapture. This basis for the building may cause part or all of the $20,000 difference between the building's FMV and its tax basis that existed on Chameleon's acquisition date to be recognized as an increased gain by Chameleon. b. Assume the same facts as in Part a except that the building's FMV is instead $40,000 and its adjusted basis is $60,000. What tax disadvantage results from the transfer as presently structured? Are there any suggestions that you can offer to Bryce to improve his tax benefits? O A. His $20,000 realized loss is not recognized for tax purposes. Bryce Norwood must defer his $20,000 realized loss until he sells his stock in a taxable transaction. The building's basis in Chameleon Corporation's hands is $60,000. Norwood may have been better off to hold on to the building until the FMV increases. OB. His $20,000 realized loss is not recognized for tax purposes. Bryce Norwood must defer his $20,000 realized loss until he sells his stock in a taxable transaction. Norwood may have been better off to sell the building for cash so he could immediately recognize his tax loss. Such a sale may be subject to the limitations found in the Sec. 267(a) related party loss rules. O C. His $20,000 realized loss is recognized ratably over five years. Norwood may have been better off to sell the building for cash so he could immediately recognize his tax loss. Such a sale may be subject to the limitations found in the Sec. 267(a) related party loss rules. D. His $20,000 realized loss is recognized for tax purposes. The building's basis in Chameleon Corporation's hands is $40,000. As a result Chameleon will deduct less depreciation per tax year. Norwood may have been better off to defer the recognition of the loss, then Chameleon's basis would have been $60,000 and it would have a higher depreciation deduction per tax year. c. Explain why the basis of gain property that is contributed to a corporation in a Sec. 351 exchange is not equal to its FMV on the date of the exchange. Is the basis of the property that is contributed to the corporation adjusted when gain is recognized by the transferor? A. The basis of property that is contributed to a corporation in a Sec. 351 transaction is not increased to the property's FMV because the transaction is subject to the limitations found in Sec. 267 related party transactions. B. The basis of property that is contributed to a corporation in a Sec. 351 transaction is not increased to the property's FMV because recognition of the gain on the transaction is deferred until the property is sold or exchanged by the transferee corporation. A step-up in the property's basis occurs if the transferor recognizes part or all of the loss realized on the asset transfer. A step-down in basis occurs if the property's FMV is more than its adjusted basis. C. The basis of property that is contributed to a corporation in a Sec. 351 transaction is not increased to the property's FMV because recognition of the gain on the transaction is deferred until the property is sold or exchanged by the transferee corporation. In a loss situation, the loss is recognized immediately and the basis of the property equal to its FMV. OD. The basis of property that is contributed to a corporation in a Sec. 351 transaction is not increased to the property's FMV because recognition of the gain on the transaction is deferred until the property is sold or exchanged by the transferee corporation. A step-up in the property's basis occurs if the transferor recognizes part or all of the gain realized on the asset transfer. A step-down in basis occurs if the property's FMV is less than its adjusted basis. d. How would your answers to Part a change if Bryce Norwood transferred a $17,000 mortgage along with the land and received stock having a value less than the amount of the liability? Chameleon would Under the circumst leon, and what is Bryce's basis in the Chameleon stock? recognize a gain equal to the amount of the mortgage transferred. still recognize no gain on the transfer of the building. Amount Building's adjusted basis in the hands of Chameleon Bryce's basis in the Chameleon stock