ACC 318 Test 1 || with Complete Solution.
John Sells Land with a fair market value of $10,000 and a basis of $4,000 for Alpha Stock worth
$10,000. What is the tax result and what tax codes are relevant to this? correct answers Tax Code
1001
Tax Result:
$10,000 (Alpha Stock) Amount realized
4,000 Basis
------------
$6,000 Gain realized
$6,000 Gain Realized via 1001 (c)
John Sells Land with a fair market value of $10,000 and a basis of $4,000 for 100% of Alpha
Stock worth $10,000. What is the result and what tax codes are relevant? correct answers Tax
Code: 351
$10,000 Amount Realized (alpha stock)
$4,000 Basis
--------------
$6,000 Realized Gain
$0.00 Recognized Gain
John transfers Whitacre to Alpha corporation in exchange for 100% of Alpha stock. At the time
of exchange, Whitacre has a fair market value of $,1000 and a basis of $100.
1)What is the result to John.
2)Does he have any gain realized?
3)Does he have any gain recognized?
4)What is the basis of the stock received by John?
5) What code sections are relevant to each of the previous questions? correct answers 1) 1001 (a)
$1000 Amount realized
,- 100 basis
--------------
$900 realized gain via 1001
$0.00 recognized gain via 351
2) $900 via 1001
3) $0 via 351
4) $100 via 358
5) next to answers
John transfers $1,000 cash to Alpha corporation in exchange for 100% of Alpha stock. At the
time of exchange, Whitacre has a fair market value of $,1000 and a basis of $100.
1)What is the result to John.
2)Does he have any gain realized?
3)Does he have any gain recognized?
4)What is the basis of the stock received by John?
5) What code sections are relevant to each of the previous questions? correct answers 1) 1001 (a)
$1,000 Amount Realized (cash invested)
$1,000 Basis (the value of the cash)
---------
0 Gain realized via 358
0 Gain recognized via 351
A) What are the elements of section 351?
B) Why is 351 important? correct answers A) 1) You have to transfer property 2) solely in
exchange for stock 3) and be in control (80%)
B) If 351 did not exist then tax would be paid every time a corporation was formed.
,Section 351 requires a transfer of property. How is the term property defined? correct answers
Property is defined as everything but services. Only transfers of property count for the control
test.
What is the result if stock is issued for services? Does it preclude the application of 351? correct
answers -Stock issued for services does not count for purposes of 351 or the control test
-Stock issued for services dose not get nonrecognition treatment
-Those who transfer services in exchange for stock have immediate gain recognition
John and Bob form Alpha company. John receives 50% of stock in exchange for land (basis of
$20,000 and a FMV of $50,000) and Bob receives 50% of stock in exchange for services (value
of $50,000).
A) Does 351 apply to either John or Bob?
B) What are the tax consequences for each of them?
C) How much property must Bob transfer in order to qualify for 351?
D) Is it possible for a transferor of services to be considered a transferor of property for purposes
of the control test? correct answers A) 351 test:
1) Was property exchanged? (John Yes, Bob No)
2) Was the property exchanged solely for stock? (John yes, Bob no since services are not
property)
3) Dose one or both transferees have a total of 80% control? (Neither of them do)
B) John
50,000 Amount realized
20,000 Basis
-------
30,000 realized gain, 30,000 recognized gain since 351 does not apply
Bon
50,000 services
, 50,000 income (compensation)
50,000 of taxable income
C) 100% of stock will be deemed issued for property for purposes of the control test only if it
meats the 10% test
10% test: Fair Market value of property transferred
----------------------------- ----------------- ≥ 10%
Fair Market value of services transferred
If Bob put in $5000
$5,000 cash/$50,000 services = 10% ≥ 10%
John and Mary each receive 50% of the Alpha stock in exchange for the following; John
transfers land with a FMV of $50,000 and a basis or $10,000. Mary transfers property wit a fair
market value of $25,000 and a basis of $10,000. In addition she agrees to perform $25,000 of
services.
1) Is the control requirement for 351 satisfied? correct answers 25,000 FMV of property/ 25,000
services = 50% ≥ 10
Since Mary passes the 10% test the control requirement is satisfied
Indicate weather 351 rules apply to the following: This year M, N, and O formed R corporation.
Each contributed property in exchange for 60, 30, and 10 shares of R stock, respectively correct
answers 351 test:
1) Did one or more investor contributed property (yes on all three)
2) Did one or more investor contribute property solely in exchange for stock? ( Yes to all three)
3) Does one or more investors who contributed property solely for stock own a total of 80% of
the stock? (Yes to all three since they together own 100% of the company and passed the first
two parts.
Indicate weather 351 rules apply to the following: This year M, N, and O formed R corporation.
Each contributed property in exchange for 60, 30, and 10 shares of R stock, respectively. Two
John Sells Land with a fair market value of $10,000 and a basis of $4,000 for Alpha Stock worth
$10,000. What is the tax result and what tax codes are relevant to this? correct answers Tax Code
1001
Tax Result:
$10,000 (Alpha Stock) Amount realized
4,000 Basis
------------
$6,000 Gain realized
$6,000 Gain Realized via 1001 (c)
John Sells Land with a fair market value of $10,000 and a basis of $4,000 for 100% of Alpha
Stock worth $10,000. What is the result and what tax codes are relevant? correct answers Tax
Code: 351
$10,000 Amount Realized (alpha stock)
$4,000 Basis
--------------
$6,000 Realized Gain
$0.00 Recognized Gain
John transfers Whitacre to Alpha corporation in exchange for 100% of Alpha stock. At the time
of exchange, Whitacre has a fair market value of $,1000 and a basis of $100.
1)What is the result to John.
2)Does he have any gain realized?
3)Does he have any gain recognized?
4)What is the basis of the stock received by John?
5) What code sections are relevant to each of the previous questions? correct answers 1) 1001 (a)
$1000 Amount realized
,- 100 basis
--------------
$900 realized gain via 1001
$0.00 recognized gain via 351
2) $900 via 1001
3) $0 via 351
4) $100 via 358
5) next to answers
John transfers $1,000 cash to Alpha corporation in exchange for 100% of Alpha stock. At the
time of exchange, Whitacre has a fair market value of $,1000 and a basis of $100.
1)What is the result to John.
2)Does he have any gain realized?
3)Does he have any gain recognized?
4)What is the basis of the stock received by John?
5) What code sections are relevant to each of the previous questions? correct answers 1) 1001 (a)
$1,000 Amount Realized (cash invested)
$1,000 Basis (the value of the cash)
---------
0 Gain realized via 358
0 Gain recognized via 351
A) What are the elements of section 351?
B) Why is 351 important? correct answers A) 1) You have to transfer property 2) solely in
exchange for stock 3) and be in control (80%)
B) If 351 did not exist then tax would be paid every time a corporation was formed.
,Section 351 requires a transfer of property. How is the term property defined? correct answers
Property is defined as everything but services. Only transfers of property count for the control
test.
What is the result if stock is issued for services? Does it preclude the application of 351? correct
answers -Stock issued for services does not count for purposes of 351 or the control test
-Stock issued for services dose not get nonrecognition treatment
-Those who transfer services in exchange for stock have immediate gain recognition
John and Bob form Alpha company. John receives 50% of stock in exchange for land (basis of
$20,000 and a FMV of $50,000) and Bob receives 50% of stock in exchange for services (value
of $50,000).
A) Does 351 apply to either John or Bob?
B) What are the tax consequences for each of them?
C) How much property must Bob transfer in order to qualify for 351?
D) Is it possible for a transferor of services to be considered a transferor of property for purposes
of the control test? correct answers A) 351 test:
1) Was property exchanged? (John Yes, Bob No)
2) Was the property exchanged solely for stock? (John yes, Bob no since services are not
property)
3) Dose one or both transferees have a total of 80% control? (Neither of them do)
B) John
50,000 Amount realized
20,000 Basis
-------
30,000 realized gain, 30,000 recognized gain since 351 does not apply
Bon
50,000 services
, 50,000 income (compensation)
50,000 of taxable income
C) 100% of stock will be deemed issued for property for purposes of the control test only if it
meats the 10% test
10% test: Fair Market value of property transferred
----------------------------- ----------------- ≥ 10%
Fair Market value of services transferred
If Bob put in $5000
$5,000 cash/$50,000 services = 10% ≥ 10%
John and Mary each receive 50% of the Alpha stock in exchange for the following; John
transfers land with a FMV of $50,000 and a basis or $10,000. Mary transfers property wit a fair
market value of $25,000 and a basis of $10,000. In addition she agrees to perform $25,000 of
services.
1) Is the control requirement for 351 satisfied? correct answers 25,000 FMV of property/ 25,000
services = 50% ≥ 10
Since Mary passes the 10% test the control requirement is satisfied
Indicate weather 351 rules apply to the following: This year M, N, and O formed R corporation.
Each contributed property in exchange for 60, 30, and 10 shares of R stock, respectively correct
answers 351 test:
1) Did one or more investor contributed property (yes on all three)
2) Did one or more investor contribute property solely in exchange for stock? ( Yes to all three)
3) Does one or more investors who contributed property solely for stock own a total of 80% of
the stock? (Yes to all three since they together own 100% of the company and passed the first
two parts.
Indicate weather 351 rules apply to the following: This year M, N, and O formed R corporation.
Each contributed property in exchange for 60, 30, and 10 shares of R stock, respectively. Two
