Week 4
CHAPTER 14
55. Susan Sweets is a 40 percent shareholder in Acclaim Inc., a theatrical supplies company. She transfers a fully depreciated car with a value of $2,000 to the corporation, but does not receive any consideration for it.
a. What are the tax consequences to Susan?
There no tax consequences for Susan because she didn’t receive anything in return from the corporation. The rule under Code Sec. 351 is mandatory and provides that no gain or loss is recognized upon the transfer of property to a corporation solely in exchange for its stock if the taxpayer transferring the property (the transferor) is in control of the corporation immediately after the exchange.(2012 CCH Federal Taxation: Comprehensive Topic. CCH, 03/2011. 14). <vbk:9780808027201#outline(14)>
b. What are the tax consequences to the corporation?
There no tax consequences for the Corporation because of Code Sec.351 The rule under Code Sec. 351 is mandatory and provides that no gain or loss is recognized upon the transfer of property to a corporation solely in exchange for its stock if the taxpayer transferring the property (the transferor) is in control of the corporation immediately after the exchange.(2012 CCH Federal Taxation: Comprehensive Topic. CCH, 03/2011. 14). <vbk:9780808027201#outline(14)>
c. What, if any, changes if Susan received another 10 percent stock interest for the car?
It would depend on the value of the stocks at that time, if the value exceeds $2,000 than she would have to include the excess amount as income for that year.
62. A corporation has income of $62,000 from operations and a net long-term capital loss of $5,000. What is the corporation's taxable income for the year?
Corporations are allowed to deduct in their taxes, any losses incurred in a taxable year, in this case the loss of $5,000 was a long term capital loss which cannot be deducted. So in this case, the corporation taxable income will be
55. Susan Sweets is a 40 percent shareholder in Acclaim Inc., a theatrical supplies company. She transfers a fully depreciated car with a value of $2,000 to the corporation, but does not receive any consideration for it.
a. What are the tax consequences to Susan?
There no tax consequences for Susan because she didn’t receive anything in return from the corporation. The rule under Code Sec. 351 is mandatory and provides that no gain or loss is recognized upon the transfer of property to a corporation solely in exchange for its stock if the taxpayer transferring the property (the transferor) is in control of the corporation immediately after the exchange.(2012 CCH Federal Taxation: Comprehensive Topic. CCH, 03/2011. 14). <vbk:9780808027201#outline(14)>
b. What are the tax consequences to the corporation?
There no tax consequences for the Corporation because of Code Sec.351 The rule under Code Sec. 351 is mandatory and provides that no gain or loss is recognized upon the transfer of property to a corporation solely in exchange for its stock if the taxpayer transferring the property (the transferor) is in control of the corporation immediately after the exchange.(2012 CCH Federal Taxation: Comprehensive Topic. CCH, 03/2011. 14). <vbk:9780808027201#outline(14)>
c. What, if any, changes if Susan received another 10 percent stock interest for the car?
It would depend on the value of the stocks at that time, if the value exceeds $2,000 than she would have to include the excess amount as income for that year.
62. A corporation has income of $62,000 from operations and a net long-term capital loss of $5,000. What is the corporation's taxable income for the year?
Corporations are allowed to deduct in their taxes, any losses incurred in a taxable year, in this case the loss of $5,000 was a long term capital loss which cannot be deducted. So in this case, the corporation taxable income will be