taxation questions
Please answer to each questions and scenarios, write more or less one page per question
for each question is based on HOW you reached your answer, not the conclusion. Therefore, show all work.
Here is the grading rubric for how each question is graded:
Good Faith Effort in attempting to answer the problem: 50%
Correct and complete analysis of problems (including citing primary source material): 40%
Correct conclusion reached based on analysis: 10%
1. A owns 83% of X Corporation. A transfers an asset to X that has a FMV of $500k and an adjusted basis of $300k with a mortgage of $150k. A receives stock back with a FMV of $350k.
a) Is there any gain or loss on the transfer for A or X? (15 points)
b) What is the basis for A in the stock? (20 points)
2) B owns 75% and C owns 10% of Y Corporation. B transfers an asset worth $100 with an adjusted basis of $5 for 75 shares worth $70 and cash of $30. C transfers cash of 50 in for shares worth $50.
a) Is there a gain or loss on the transfer for B? C? Y? (20 points)
b) What is the basis in the stock for B, C? What is the basis for Y for the asset that B transferred? (20 points)
c) What if Y sells the asset that B transferred in 5 years later for $200 (ignore depreciation), what would the gain/loss be? (10 points)
3. A has a basis in stock for her shares in her wholly owned Corporation Z at $100k. A gives a piece of property for $100k to Z because it really needs it to expand to a new location for business.
a) Is there any gain/loss for A or Z? (10 points)
b) What will A’s basis in her Z stock be after the transfer? What will Z’s basis in the property be? (10 points)
4) A transferred land worth $100k with an adjusted basis of $75k subject to a mortgage of $10k to N corporation in exchange for stock worth $80k and cash worth $10k. Will there be gain/loss for A or N? (15 points)
5. Billy wants to open a corporation and is thinking of ways to set up the capital structure of the business. Billy comes to you asking very surprisingly coherent questions for not knowing anything about taxes. Please advise on the following questions:
a) I make wads of cash as an employee at Google (35% tax bracket), and want to have money go through my corporation to capture a lower tax bracket (15%). Addressing only the Accumulated Earning tax, which structure would be ideal to set up between a debt structure or equity structure of ownership for Billy and why? (20 points)
b) In (a), why does Billy want to run the money through the corporation and how would setting up your business in the way suggested in (a) help attain tax advantageous results. Do not discuss boot in this problem. (20 points)
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