A incurred the debt during the previous year and used the loan proceeds to pay routine operating

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

THE TRANSFEREE CORPORATION’S ASSUMPTION OF DEBT

IN A GOOD 351 EXCHANGE

Consider the facts of Problem 14 (bottom of page) with the following alternative modifications:

a. A incurred the debt 1 week prior to transferring land to X corporation; he used the loan proceeds to take his wife on a luxurious round-trip cruise from NYC to Southampton aboard Queen Mary 2.

b. A incurred the debt during the previous year and used the loan proceeds to pay routine operating expenses during the pandemic.

Answer the following questions under each alternative (support your answer with specific reference to relevant provisions of the Code and Treasury Regulations):

1. What is A’s (i)amount realized, (ii)realized gain & (iii)recognized gain in this exchange? (6 points)

2. What effect, if any would X Corporation’s assumption of the debt have on the application of 351 to A’s transfer? Explain your answer. (8 points)

3. What basis would A have in his X stock? (2 points)

4. What basis would X Corporation have in the land? (2 points)

5. Logically justify your answers to questions 3 and 4. (4 points)

(Problem 14) For reference:

X corporation has 1,000 shares of stock outstanding, owned as shown below:

S/H Shares

A 100

B 100

C 200

D 600

C&D are married. For each of the following independent situations indicate whether the redemption would qualify for sale or exchange treatment under Section 302.

A. X redeems all of the stock owned by C in exchange for $50,000 in cash and a $100,000 note payable in annual installments, with adequate stated interest, over the next five years.

B. X redeems all of A’s stock. A will continue to serve as the company’s vice president.

C. 3 years ago, X redeemed all stock owned by B’s father E. At that time. E filed the appropriate agreement with his tax return to waive the family attribution rules. This year, B died, leaving all his stock to E.

Attachments:

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