Exam 9: Nontaxable Exchanges

Nagin Inc. transferred an old asset in exchange for a new asset worth $84,000 and $6,000 cash. The old asset and new asset were like-kind properties. Which of the following statements is true?

Yelano Inc. exchanged an old forklift used in its business for a new forklift. This like-kind exchange is nontaxable.

IPM Inc. and Zeta Company formed IPeta Inc. by transferring business assets in exchange for 1,000 shares of IPeta common stock. IPM transferred assets with a $675,000 FMV and a $283,000 adjusted tax basis and received 600 shares. Zeta transferred assets with a $450,000 FMV and a $98,000 adjusted tax basis and received 400 shares. Compute IPM and Zeta's realized and recognized gain on the exchange.

When unrelated parties agree to an exchange of noncash properties, the economic presumption is that the properties have the same adjusted book basis.

Mr. and Mrs. Meredith own a sole proprietorship consisting of business assets with a $649,000 aggregated adjusted tax basis. According to an independent appraisal, the business is worth $2 million. The Merediths are planning to transfer the entire business to Molleri Inc. in exchange for 20,000 shares of Molleri stock. How much gain will the Merediths recognize on the exchange of business assets for stock and what basis will they take in the stock if: a. Molleri has 23,000 shares of outstanding stock immediately after the exchange. b. Molleri has 500,000 shares of outstanding stock immediately after the exchange.

When unrelated parties agree to an exchange of noncash properties, the economic presumption is that the properties are of equal value.

Signo Inc.'s current year income statement includes a $21,000 gain realized on the exchange of an old business asset for a new business asset. If the exchange is nontaxable, Signo has a $21,000 favorable permanent book/tax difference.