PROBLEM SET WEEK 5

Problem Set Week 5 Hector Valentin Cordero ACC 547 Adael Acosta, Instructor December 5, 2011

PROBLEM SET WEEK 5 Chapter 15 83

Answers: a. Here are a few issues: y Compensation based on location y Better Liability protection as partnership y Time and cost to organize the entity y It might be a good opportunity if a C or S corporation is formed, for tax purposes y The LLC and partnerships can benefit the partners (owners) increasing their tax basis by the business debt. y The FICA and self employed taxes might be of concern to the owners y If in the future they want to add more owners the cost would be higher operating as a S corporation b. They should open the CCS as an LLC Chapter 19 problem 39. Answer: a. What amount of gain or loss does Zhang realize on the transfer of the property to her corporation? y Zhang realizes a net loss of $10,000 on this transfer, computed as follows:

b. What amount of gain or loss does Zhang recognize on the transfer of the property to her corporation? y Zhang does not recognize any gain loss on the transfer because the requirements of 351 are met.

c. What is Zhangs tax basis in the stock she receives in the exchange? y $310,000. Zhangs tax basis in the stock received is a substituted basis of the assets transferred less the mortgage assumed by the corporation.

d. What is the corporations tax-adjusted basis in each of the assets received in the exchange? y They receive a carryover basis in the assets received from Zhang, they will reduce by the aggregate net built-in loss on the assets transferred, allocated to the land.

e. How much, if any, gain or loss does Zhang recognize on the exchange assuming the revised facts?

PROBLEM SET WEEK 5 Even though Zhang did not receive any boot in the transaction, Zhang must recognize gain of $90,000 on the transfer.

f. What is Zhangs tax basis in the stock she receives in the exchange? y She will receive $0 in tax basis of stocks o Tax adjusted basis of property contributed o + Gain recognized on the exchange o - Mortgage assumed by corporation o $410,000 90,000 (500,000) $ 0

g. What is the corporations tax-adjusted basis in each of the assets received in the exchange? y The gain recognized must be allocated to the tax basis of the assets received by the corporation: o Inventory $ 12,250 o Building 128,125 o Land 359,625 o Total $500,000