ACC330 Exam 3 Questions With Accurate Answers
nontaxable exchange - ANSWER a transaction resulting in gain or loss thats not
recognized (in whole or part) in the current year
- BTD is temporaty and will reverse as newly acquired property is depreciated or
disposed of
- if no cash is received, entire gain or loss is deferred
how do nontaxable exchanges make tax law neutral? - ANSWER can convert property
from one form to another without tax costs
elements of a generic nontaxable exchange - ANSWER - transforms one property
interest into another
- only disposition and receipt of qualifying property can be a nontaxable exchange
- must be nontaxable to both firms (agreed before exchange that properties are of equal
value for arm's length exchange)
substituted basis rule - ANSWER causes an unrecognized gain or loss on a nontaxable
exchange to be included in the basis of the qualifying property acquired, G/L remains
dormant as long as taxpayer holds the property and is recognized upon taxable
disposition of the property
- FMV of property received - deferred gain or + deferred loss
how to calculate basis of property surrendered in a nontaxable exchange - ANSWER
same as basis of property acquired,
FMV of property - deferred gain/+ deferred loss
boot - ANSWER any cash or nonqualifying property included in a nontaxable exchange
when the FMV of properties are unequal
- party receiving boot recognizes a portion of realized gain equal to boot FMV
- must allocate basis between boot and property
how to calculate basis of qualifying property acquired when there's a boot received -
ANSWER basis of qualifying property surrendered + gain recognized - FMV of boot
how to calculate basis of qualifying property acquired when there's a boot paid -
ANSWER basis of qualifying property surrendered + FMV of boot
characteristics of nontaxable exchange - ANSWER - involves qualifying property
, - G/L realized on exchange is deferred
- basis of qualifying property received = basis of qualifying property surrendered
(substituted basis rule)
- receipt of booth trigger gain recognition up to boot FMV
corporate formation - ANSWER no G/L is recognized when property(tangible and
intangible assets, NOT personal services) is transferred to a corp solely in exchange for
stock if receive control of property immediately after exchange
- 351 corp formation rule: transferor must own at least 80% of stock after exchange to
be nontaxable
- corp does not recognize G/L whether nontaxable or taxable to transferor
- if exchange is nontaxable(80%), corp takes carryover basis from transferor for
property
- if exchange is taxable, corp takes cost basis for property
partnership formation - ANSWER neither partners or partnership recognize G/L when
property is exchanged for equity interest
- more flexible than corporate exchange
- no 80% rule, all exchanges are nontaxable
types of nontaxable exchange - ANSWER like-kind exchange: 1031, exchange of similar
property
formation of business entity: 351
what tax standard relates to nontaxable formations of business entities? - ANSWER
efficiency
how to calculate basis of stock received for corp formation exchange - ANSWER =
substituted basis (basis of transferred property)
- corp uses carryover basis for received property
sole proprietorship - ANSWER unincorporated business entity owned by one individual
- owns business assets and is solely liable for debt
- report income using schedule C of form 1040 (individual income tax return). Tax on net
income included in ordinary income not schedule C. All income/loss on schedule C is
ordinary, capital is reported on personal form
- net loss can reduce taxable amount to zero and remainder carries forward indefinitely
nontaxable exchange - ANSWER a transaction resulting in gain or loss thats not
recognized (in whole or part) in the current year
- BTD is temporaty and will reverse as newly acquired property is depreciated or
disposed of
- if no cash is received, entire gain or loss is deferred
how do nontaxable exchanges make tax law neutral? - ANSWER can convert property
from one form to another without tax costs
elements of a generic nontaxable exchange - ANSWER - transforms one property
interest into another
- only disposition and receipt of qualifying property can be a nontaxable exchange
- must be nontaxable to both firms (agreed before exchange that properties are of equal
value for arm's length exchange)
substituted basis rule - ANSWER causes an unrecognized gain or loss on a nontaxable
exchange to be included in the basis of the qualifying property acquired, G/L remains
dormant as long as taxpayer holds the property and is recognized upon taxable
disposition of the property
- FMV of property received - deferred gain or + deferred loss
how to calculate basis of property surrendered in a nontaxable exchange - ANSWER
same as basis of property acquired,
FMV of property - deferred gain/+ deferred loss
boot - ANSWER any cash or nonqualifying property included in a nontaxable exchange
when the FMV of properties are unequal
- party receiving boot recognizes a portion of realized gain equal to boot FMV
- must allocate basis between boot and property
how to calculate basis of qualifying property acquired when there's a boot received -
ANSWER basis of qualifying property surrendered + gain recognized - FMV of boot
how to calculate basis of qualifying property acquired when there's a boot paid -
ANSWER basis of qualifying property surrendered + FMV of boot
characteristics of nontaxable exchange - ANSWER - involves qualifying property
, - G/L realized on exchange is deferred
- basis of qualifying property received = basis of qualifying property surrendered
(substituted basis rule)
- receipt of booth trigger gain recognition up to boot FMV
corporate formation - ANSWER no G/L is recognized when property(tangible and
intangible assets, NOT personal services) is transferred to a corp solely in exchange for
stock if receive control of property immediately after exchange
- 351 corp formation rule: transferor must own at least 80% of stock after exchange to
be nontaxable
- corp does not recognize G/L whether nontaxable or taxable to transferor
- if exchange is nontaxable(80%), corp takes carryover basis from transferor for
property
- if exchange is taxable, corp takes cost basis for property
partnership formation - ANSWER neither partners or partnership recognize G/L when
property is exchanged for equity interest
- more flexible than corporate exchange
- no 80% rule, all exchanges are nontaxable
types of nontaxable exchange - ANSWER like-kind exchange: 1031, exchange of similar
property
formation of business entity: 351
what tax standard relates to nontaxable formations of business entities? - ANSWER
efficiency
how to calculate basis of stock received for corp formation exchange - ANSWER =
substituted basis (basis of transferred property)
- corp uses carryover basis for received property
sole proprietorship - ANSWER unincorporated business entity owned by one individual
- owns business assets and is solely liable for debt
- report income using schedule C of form 1040 (individual income tax return). Tax on net
income included in ordinary income not schedule C. All income/loss on schedule C is
ordinary, capital is reported on personal form
- net loss can reduce taxable amount to zero and remainder carries forward indefinitely
