Corporate Tax-Planning Strategies and Ethical Considerations
QUESTION
Corporate Tax-Planning Strategies and Ethical Considerations
Determine the tax consequences of the transfer of property from shareholders to corporations, and you will identify tax-planning opportunities for corporations, taking into consideration ethical and legal issues.
When Jose and Ray formed ABC Fitness, Inc., they transferred some of their property in exchange for common stock.
Jose transferred a building with a fair market value of $800,000 and adjusted basis of $700,000 on March 15, 2008, in exchange for 1,000 shares of common stock. The building has a mortgage of $775,000 that will be assumed by ABC Fitness.
Ray transferred the following property on April 15, 2009, in exchange for 1,000 shares of common stock:
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- Equipment with a fair value of $750,000 and adjusted basis of $450,000
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- Inventory with a cost basis of $150,000
In a Word document, answer these questions:
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- Determine whether Jose and Ray have a taxable exchange as a result of their respective transfers.
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- Determine the stock basis for Jose and Ray as a result of the exchange.
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- Determine ABC Fitness, Inc.’s basis in the building that Jose transferred.
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- Determine ABC Fitness, Inc.’s basis in the equipment that Ray transferred.
- Determine how Jose and Ray can plan their transactions in order to not report any gain as a result of the transfer of property under legal requirements (assume IRC 351 and 368 have not changed for the purpose of corporate formation). Are there any ethical concerns with planning their transactions in this way?
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