On May 1 of the Current Year,Kiara,Victor,Pam,and Joe Form Newco

Question

Examlex · Accepted Answer

The Answer is a)Yes,the transaction meets the requirements of Sec.351.Transferors of property (Kiara,Victor,& Pam)own 88.2% (750/850 = 0.882)of the Newco stock.
b)Kiara must recognize a $10,000 gain,the amount by which the $60,000 mortgage assumed by Newco exceeds the $50,000 basis ($12,000 + $38,000)of all the assets transferred by Kiara.The character of the gain is a Sec.1231 gain.Victor must recognize $10,000 of gain (the lesser of his realized gain of $15,000 on the boot received of $10,000).The gain is ordinary income recaptured under Sec.1245.Pam realized a $5,000 loss,which is not recognized even though she received cash.Joe must recognize $10,000 ordinary income on compensation for his services.Newco Corporation recognizes neither a gain nor a loss on the issuance of its stock or note.
c)Kiara's basis is zero ($12,000 + $38,000 - $60,000 + $10,000 gain).Her holding period includes her holding period for the land and building.Victor's basis is $25,000 ($25,000 + $10,000 gain - $10,000 boot).His holding period includes his holding period for the equipment.Pam's basis for her stock is $10,000 ($15,000 - $5,000 boot).Her holding period includes the holding period for the van.Joe's basis for his stock is $10,000.His holding period begins on the day after the exchange.
d)Newco Corporation's basis is:

a)Yes,the transaction meets the requirements of Sec.351.Transferors of property (Kiara,Victor,& Pam)own 88.2% (750/850 = 0.882)of the Newco stock. b)Kiara must recognize a $10,000 gain,the amount by which the $60,000 mortgage assumed by Newco exceeds the $50,000 basis ($12,000 + $38,000)of all the assets transferred by Kiara.The character of the gain is a Sec.1231 gain.Victor must recognize $10,000 of gain (the lesser of his realized gain of $15,000 on the boot received of $10,000).The gain is ordinary income recaptured under Sec.1245.Pam realized a $5,000 loss,which is not recognized even though she received cash.Joe must recognize $10,000 ordinary income on compensation for his services.Newco Corporation recognizes neither a gain nor a loss on the issuance of its stock or note. c)Kiara's basis is zero ($12,000 + $38,000 - $60,000 + $10,000 gain).Her holding period includes her holding period for the land and building.Victor's basis is $25,000 ($25,000 + $10,000 gain - $10,000 boot).His holding period includes his holding period for the equipment.Pam's basis for her stock is $10,000 ($15,000 - $5,000 boot).Her holding period includes the holding period for the van.Joe's basis for his stock is $10,000.His holding period begins on the day after the exchange. d)Newco Corporation's basis is: The gain is allocated between the two assets based on their relative FMVs.The holding period includes Kiara's holding period. The holding period includes Pam's holding period. The $10,000 in accounting services is deductible by Newco Corporation if received subsequent to the start of operations.If they are preoperating expenses,they should be analyzed under Sec.248.

The gain is allocated between the two assets based on their relative FMVs.The holding period includes Kiara's holding period.

The holding period includes Pam's holding period.
The $10,000 in accounting services is deductible by Newco Corporation if received subsequent to the start of operations.If they are preoperating expenses,they should be analyzed under Sec.248.

On May 1 of the Current Year,Kiara,Victor,Pam,and Joe Form Newco

Definitions: