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Exam 12: Corporations: Organization, Capital Structure, and Operating Rules

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Question 21

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Hunter and Warren form Tan Corporation.Hunter transfers equipment (basis of $210,000 and fair market value of $180,000) while Warren transfers land (basis of $15,000 and fair market value of $150,000) and $30,000 of cash.Each receives 50% of Tan's stock.As a result of these transfers:

A) Hunter has a recognized loss of $30,000, and Warren has a recognized gain of $135,000.
B) Neither Hunter nor Warren has any recognized gain or loss.
C) Hunter has no recognized loss, but Warren has a recognized gain of $30,000.
D) Tan Corporation will have a basis in the land of $45,000.
E) None of these.

F) A) and B)
G) A) and E)

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Question 22

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Robin Corporation, a calendar year C corporation, had taxable income of $700,000, $1.2 million, and $1 million for 2017, 2018, and 2019, respectively.Robin has taxable income of $1.8 million for 2019.The minimum 2020 estimated tax installment payments for Robin are:

A) April 15, 2020, $52,500; June 15, 2020, $52,500; September 15, 2020, $52,500; December 15, 2020, $52,500.
B) April 15, 2020, $52,500; June 15, 2020, $94,500; September 15, 2020, $94,500; December 15, 2020, $94,500.
C) April 15, 2020, $94,500; June 15, 2020, $94,500; September 15, 2020, $94,500; December 15, 2020, $94,500.
D) April 15, 2020, $52,500; June 15, 2020, $136,500; September 15, 2020, $94,500; December 15, 2020, $94,500.
E) None of these.

F) B) and E)
G) D) and E)

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Question 23

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Luis is the sole shareholder of a regular C corporation, and Eduardo owns a proprietorship.In the current year, both businesses make a profit of $80,000 and each owner withdraws $50,000 from his business.With respect to this information, which of the following statements is incorrect?

A long-term note is treated as "boot." Thus, Eve is taxed on the value of the note received.

Carl transfers land to Cardinal Corporation for 90% of the stock in Cardinal Corporation worth $20,000 plus a note payable to Carl in the amount of $40,000 and the assumption by Cardinal Corporation of a mortgage on the land in the amount of $100,000.The land, which has a basis to Carl of $70,000, is worth $160,000.

Thrush Corporation files its Form 1120, which reports taxable income of $200,000 in the current year.The corporation's tax is $42,000.

Because boot is generated under § 357(b) (i.e., the liability is not supported by a bona fide business purpose), the transferor shareholder will always have to recognize gain.

Rob and Yi form Bluebird Corporation with the following investments. Each receives 50% of Bluebird's stock.In addition, Yi receives cash of $40,000.One result of these transfers is that Yi has a:

Which of the following statements is incorrect regarding the dividends received deduction?

Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $65,000; land by Tony (basis of $25,000 and fair market value of $35,000) .Dove Corporation issues 400 shares of stock, 200 each to Sarah and Tony.Thus, each receives stock in Dove worth $50,000.

Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.

A taxpayer transfers assets and liabilities to a corporation in return for its stock.If the liabilities exceed the basis of the assets transferred, the taxpayer will have a negative basis in the stock.

A corporation with $5 million or more in assets must file Schedule M-3 (instead of Schedule M-1).

Alan, an Owl Corporation shareholder, makes a contribution to capital of equipment to Owl, basis of $40,000 and fair market value of $50,000.Owl's basis of the equipment that Alan contributes is equal to $50,000, the property's fair market value.

Canary Corporation, which sustained a $5,000 net short-term capital loss during the year, will enter $5,000 as an addition on Schedule M-1 of Form 1120.

A corporation's holding period for property received under § 351 includes the holding period of the transferor shareholder.

Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation.In the current year, both businesses make a net profit of $60,000.Neither business distributes any funds to the owners in the year.For the current year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income from the corporation on her individual tax return.

In return for legal services worth $60,000 rendered incident to its formation, Crimson Corporation issues stock to Greta, an attorney.Crimson cannot immediately deduct the value of any of this stock but instead must capitalize it as an organizational expenditure.

Under Federal tax law, a bias for corporate issuers exists in favor of debt as compared to equity when financing the operations of a corporation.

Similar to like-kind exchanges, the receipt of "boot" under § 351 can cause loss to be recognized.