On May 1 of the Current Year, Kiara, Victor, Pam

question 79

Essay

On May 1 of the current year, Kiara, Victor, Pam, and Joe form Newco Corporation with the following investments:
Property Transferred
Number of
Transferor Asset Basis to Transferor FMV common
shares issued
Kiara Land $12,000 $30,000
Building 38,000 70,000 400
Mortgage and the
land & building 60,000 60,000
Victor Equipment 25,000 40,000 300
Pam Van 15,000 10,000 50
Joe Accounting Services 0 10,000 100
Kiara purchased the land and building several years ago for $12,000 and $50,000, respectively. Kiara has claimed straight-line depreciation on the building. Victor also received a Newco Corporation note for $10,000 due in three years. The note bears interest at a rate acceptable to the IRS. Victor purchased the equipment three years ago for $50,000. Pam also receives $5,000 cash. Pam purchased the van two years ago for $20,000.
a) Does the transaction satisfy the requirements of Sec. 351?
b) What are the amounts and character of the reorganized gains or losses to Kiara, Victor, Pam, Joe, and Newco Corporation?
c) What is each shareholder's basis for his or her Newco stock? When does the holding period for the stock begin?
d) What is Newco Corporation's basis for its property and services? When does its holding period begin for each property?

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Definitions:

Licensing Fees

Payments made to obtain permission to use someone else’s property, such as intellectual property, under agreed conditions.

Popular Culture

Encompasses the set of ideas, perspectives, attitudes, images, and other phenomena that are within the mainstream of a culture, especially those disseminated via mass media.

Innovation Success

The achievement of desired outcomes and impacts from new ideas, products, or processes, measured by criteria such as adoption, profitability, and market penetration.

Return on Investment

calculates the financial return on a particular investment relative to its cost, to evaluate its efficiency.