Ana, a reformed social justice warrior, transfers her accounts receivables from inventory sales of a failed business selling those Knitted Pink Hats in 2016 with a basis of $0 and a FVM of $200,000 (and dropping fast) and payables of $100,000 ($ she owes for purchased pink yarn) to Newco for 100 Newco shares. Ana’s Knitted Pink Hats business was a cash method business.Billie Jo transfers a hat maker with an AB in her hands of $250,000, a FMV of$450,000, subject to a liability of $300,000, in exchange for $50,000 of cash and 100 Newco shares. (Newco assumes the liability.)Bobbi Sue transfers to Newco a building in which to house the hat maker. The building has an AB in Bobbi Sue’s hands of $200,000 and a FMV of $100,000—it’s located in one of the towns that have defunded the police. Bobbi Sue receives 100 Newco shares.undefinedThis table summarizes the contributions:PersonABFMVPayables/ LiabilityConsiderationAna0200,000100,000100 sharesBillie Jo250,000450,000300,000100 shares plus50,000 in cashBobbi Sue200,000100,0000100 sharesWith regard to Ana, Billie Jo, Bobbi Sue, and Newco, determine only:the amount of recognized gain or loss; and
the basis that each party–both the shareholders and Newco–takes in the stock or property received.[10] Same basic facts as prior question. During the negotiations leading to the formation of Newco, Ana, Billie Jo, and Bobbi Sue realize that they need a marketing expert. They find a great candidate, Debbie Di, on LinkedIn and make her a generous salary offer. She refuses and insists instead on receiving 25% of the shares of Newco in exchange for future services.Would Debbie’s receipt of 100 shares at incorporation affect your answers to
Q3? There’s no need for any detailed calculations.
What planning idea(s) would you suggest to potentially mitigate any adverse tax consequences of giving Debbie shares?
[10] Young Amy has a 10,000 basis in her shares of Bitcoin Hustle Co. Bitcoin has 10,000 of accumulated E&Ps at the beginning of Y2, and 4,000 of Y2 E&Ps. During Y2, it makes two distributions of 10,000 to Amy, one in May and one in November.What are the tax consequences to young Amy of each of the two distributions?
[15] On May 17, 2021 (!), Apple’s stock is selling for $100/share, and it declares a dividend of $5/share payable on May 31, 2021 to shareholders of record as of May 25, 2021 (also the ex-date). C Corp purchases 1,000 shares (an infinitesimal percentage of Apple) for $100,000 May 20, 2021, and receives dividends of $5,000 on May 31, 2021. 3 days later, C Corp sells its shares for $95,000.What are the tax consequences to C Corp with respect to the dividend and sale?
Same basic facts, but C Corp instead retains the shares, receives the dividends, and sells them on July 31, 2021 for $95,000.
Very briefly (2 or 3 sentences max), what is the tax policy concern with the result in b?
Same basic facts, but since Apple sold so many new iphones and those creepy itrackers in May, 2021, Apple declared and paid another dividend of $6/share on June 5, 2021 to all shareholders of record on June 1, 2021. Again, assume C Corp retains the shares and sells them on September 30, 2021 for $105,000.
[15] C, a C corporation, has been owned for 5 years by two unrelated individuals, A and B. A owns 60 shares of C common stock (FMV = $1,200; AB = $600). B owns 40 shares of C common stock (FMV= $800; AB = $600). C’s accumulated E&Ps areIf B sells 10 shares back to C for $200, what are the tax consequences to B
To improve the tax efficiency of C’s redemptions, A’s tax attorney proposes the following
series of transactions: On May 1, 2019, C redeems 50% of A’s shares (30 shares) for 600, and two months later, C will redeem 50% of B’s shares (20 shares) for 400. What is the desired treatment for both A and B? Very briefly (2 or 3 sentences), what are the potential tax risks?
[15] X Corp and Y Corp each have the following identical characteristics: (1) cash of $100; (2) other assets with an AB of $100 and FMV of $300; (3) no liabilities (yeah); and (4) E&Ps of $100. Each has outstanding 100 shares worth $4 per share.What are the consequences to A?
What are the consequences to Y Corp, i.e., what’s Y’s basis in the X shares?
[15] Parent Inc. (“P”), a C corporation, owns 90 percent of the outstanding stock
of Subsidiary, Inc. (“S”), a C corporation. Individual (“I”) owns the remaining 10 percent of S. P’s basis in its S stock is $3,000, and I’s basis in his S stock is $200. S has accumulated E&Ps of $2,000 and the following assets:S distributes the inventory to I and the other assets to P.
S distributes the equipment to I and the other assets to P. How might S improve this result?
[15] Y Corp owns 100% of X Corp stock with a basis of $100. X Corp owns a building (FMV = $1,000; AB = $300). X Corp has $200 of E&P. For the questions below, indicate which parties recognize gain and whether the building has a FMV basis or carryover basis when the dust settles. Don’t worry about exact values and disregard, like totally, which entity pays the tax on any recognized gain.Y Corp sells X Corp stock to Z Corp for $1,000, and Z Corp makes a section 338(g) election.
Y Corp sells X Corp stock to Z Corp for $1,000, and a section 338(h)(10) election is jointly made.
Under these facts, is a 338(g) election advisable? Why or why not? Under what circumstances could a 338(g) election be advisable? One alternative fact is sufficient.
[25] Acquiring Corp (Acq) is a publicly traded company with 500X shares of voting common stock outstanding (FMV = $10 per share) and $500X of accumulated E&Ps. Target Corp (T) has assets with an AB of $300,000 and a FMV $500,000, and[20] T merges into Acq under Delaware law, and TSH receives 40,000 shares of Acq voting stock and cash of $100,000.
[5] Same facts as above, but Acq is worried about potential undisclosed T liabilities. Suggest an alternative acquisition structure (or 2) that uses the
[20] T, Inc. is a publicly held corporation that operates a chain of AB&B hourly motels and manufactures cool-kid clothing. Each business has roughly the same net worth, has a lot of built-in gain in its assets, and has been operated by T, Inc. for over five years. T has a significant amount of E&Ps. T’s directors have concluded that it would be better to separate the businesses to permit management to concentrate their attention on the motel business, which they expect to explode this post-Covid 19 summer. Just wait and see! T’s directors hear through the grapevine that Skinny Jeans Corporation wishes to acquire the clothing business but is not interested in the motels.
T would like to dispose of the clothing business, preferably in a tax-free reorganization, and it will continue to operate the motel business for the indefinite future. All of T’s assets are business assets. A banker has come to T with the following plan to accomplish the objectives of the parties:[15] What tax risks to T and T shareholders do you see in the proposed transaction?
[5] Is there a way (or ways) to tweak the transaction to mitigate those risks?
<<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< $500 before either of the transactions below, and C does not have any current E&Ps. (Don’t make any adjustments for C’s income tax liabilities, if any, arising in these transactions.)(amount and character of any income/loss) and the effect on C’s E&Ps?<<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<<< A owns all X Corp stock with an AB of $200. A owns 51% of the stock of Y Corp with an AB of $100; unrelated 3rd parties own the remaining 49% of Y Corp. A sells all of his X Corp stock to Y Corp for $400.undefined<<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<<< AssetABFMVLand$3,000$8,000Equipment2,5001,000Inventory1001,000S wants to liquidate and distribute its assets to its shareholders. What are the tax consequences to P, S, and I in the following alternative situations?<<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<<<< $100,000 of accumulated E&Ps. Assume that T has no liabilities. T has 1 shareholder, TSH, who owns 100 shares with an AB of $200,000 and a FMV$500,000. Describe the tax consequences (G/L, basis, tax attributes) to Acq, T, and TSH of the following transactionsame Acq consideration but that mitigates the T liability issue. Note: there’s no need to work out any of the collateral consequences, e.g., basis, tax attributes; just very briefly describe the alternative structure.<<<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<<<< T transfers the motel assets to a new subsidiary, Motel, Inc., and distributes the Motel stock pro rata to the T shareholders. After the spin- off, T merges into Skinny Jeans, with T shareholders receiving slightly less than 50% of Skinny Jeans voting common stock in exchange for their T stock.undefined<<<<<<<<<<<<<<<<< <<<<<<<<<<<<<<<<<<
Requirements: questions
