Chapter 04 Homework Questions

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Name: ________________________ Class: ___________________ Date: __________ ID: A Chapter 04 True/False Indicate whether the statement is true or false. ____ 1. Section 351 (which permits transfers to controlled corporations to be tax deferred) can be justified under the wherewithal to pay concept. ____ 2. Similar to like-kind exchanges, the receipt of “boot” under § 351 can cause loss to be recognized. ____ 3. Tina incorporates her sole proprietorship with assets having a fair market value of $100,000 and an adjusted basis of $110,000. Even though § 351 applies, Tina may recognize her realized loss of $10,000. ____ 4. In a § 351 transfer, a shareholder receives boot of $10,000 but ends up with a realized…show more content…
____ 21. The bona fide business requirement of § 357(b) is easily satisfied as long as the liability arose in the normal course of conducting the business that is incorporated. ____ 22. When incorporating her sole proprietorship, Samantha transfers all of its assets and liabilities. Included in the $30,000 of liabilities assumed by the corporation is $500 that relates to a personal expenditure. Under these circumstances, the entire $30,000 will be treated as boot. ____ 23. In determining whether § 357(c) applies, assess whether the liabilities involved exceed the bases of all assets a shareholder transfers to the corporation. ____ 24. A taxpayer transfers assets and liabilities to a corporation in return for its stock. If the liabilities exceed the basis of the assets transferred, the taxpayer will recognize gain to avoid having a negative basis in the stock. ____ 25. If both §§ 357(b) and (c) apply to the same transfer (i.e., the liability is not supported by a bona fide business purpose and also exceeds the basis of the properties transferred), § 357(c) predominates. ____ 26. When a taxpayer transfers property subject to a mortgage to a controlled corporation in an exchange qualifying under § 351, the transferor shareholder’s basis in stock received in the transferee corporation is increased by the amount of the mortgage on the property. ____ 27. In a § 351 transaction, Gerald transfers equipment worth $85,000 (basis of $120,000) in

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