Exam 8: Tax-Deferred Exchanges

Corporation P acquires 95 percent of Corporation T's assets for $19.5 million of P's stock in a qualifying reorganization.The assets transferred have a basis of $14 million.T retained $500,000 of cash to pay its remaining liabilities.It only used $200,000 of the cash and the remaining cash and P stock are distributed to T's shareholder,who has a basis of $14 million in her stock.What is the gain recognized on this reorganization?

Which of the following characteristics is the same for transfers of property to both a corporation and to a partnership in exchange solely for an ownership interest?

Juan owned a small rental property,which was condemned by the county to expand a local park.His adjusted basis in the property was $40,000 and he received a payment of $75,000 from the county.A year later he purchased a similar piece of real estate for $70,000.What is Juan's recognized gain on the involuntary conversion of his rental property?

Internal Revenue Code Section 351,relating to transfers to a controlled corporation,can apply to transfers to both a new and an existing corporation.

A condemnation is one type of involuntary conversion.

How is the basis of stock received for appreciated property in a Section 351 transfer determined?

Bertam transfers property with a $50,000 mortgage,a fair market value of $350,000,and a basis of $200,000 for stock valued at $300,000.If the corporation assumes the mortgage,what is Bertram's basis in the stock received in this qualifying Section 351 transaction?

When is gain recognized in a like-kind exchange?

Liabilities assumed by either a partnership or corporation have identical effects on the owners' bases in their ownership interests.

For a nonsimultaneous exchange to qualify for like-kind provisions,the taxpayer must identify the property to be acquired within 90 days and actually close the transactions within 180 days.

All of the following are deferral provisions except:

Cal contributes property valued at $50,000 (adjusted basis = $30,000)to a partnership in exchange for a partnership interest valued at $40,000 and $10,000 cash.What is Cal's recognized gain or loss on these transfers?

The loss on the total destruction of business property is always its adjusted basis regardless of fair market value.

Elizabeth exchanges her retail storage assets for retail displays.In this like-kind exchange,Elizabeth receives $2,000 in cash.The storage assets have a fair market value of $12,000 and Elizabeth's basis in the assets is $3,000.The displays have a fair market value of $10,000 and a basis of $8,000.What is Elizabeth's basis in the displays received in the exchange?

How is a new partner's basis in a partnership interest determined if the partnership has no liabilities?

In 2015,Larry's car,which he purchased six years ago for $6,000,was demolished in a traffic accident.As a result of the delay caused by this accident,Larry missed a business meeting and lost out on an important sale on which he could have earned a $1,200 commission.When he arrived home,he found his house had been broken into and his personal video equipment currently worth $3,200 (original cost = $5,000)had been stolen,along with his baseball card collection valued at $2,000 (basis = $1,500).Larry's homeowner's policy covered only $3,000 of this theft loss.He had dropped the collision coverage on his auto insurance policy because that portion was too expensive,so he had no insurance coverage for his auto accident.His adjusted gross income is $82,000 and the fair market value of the car at the time of the accident was $8,000.How much can Larry deduct as an itemized deduction for his casualty and theft losses?

Which type of reorganization is a recapitalization?

Both gain and loss are deferred in a wash sale.

Twining Corporation has some land it wants to trade for a building owned by Clopp Corporation.Clopp does not want to exchange the building because it wants to recognize its loss on the building.Twining,however,does not want to recognize its gain.What alternative(s)does Twining have that will allow it to avoid recognizing gain?

As part of a divorce decree,Janet must give her ex-spouse Herman her half-interest in stock with a total value of $120,000 (total basis = $70,000)in exchange for his half-interest in their home with a total value of $150,000 and a basis of $130,000.What are Janet and Herman's realized and recognized gains or losses on this exchange? Janet: Realized Recognized Herman: Realized Recognized