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Rose bought a piece of land 3 years ago for $1.
1. Rose bought a piece of land 3 years ago for $1. Today the fair market value is $100 and she transfers it to Flower Inc, a corporation, in exchange for all 100 of Flower's voting common stock. There are no other shareholders.
a) Does Rose recognize gain on the transfer?
b) What is Rose's basis in the stock?
c) What is Rose's holding period in the stock?
d) What is Flower's basis in the land?
e) What is Flower's holding period for the land?
f) Would your answer to parts (b) and (d) change (and if so how) if the fair market value of the land were $50 and Rose's basis was $75?
g) Would the answer to part (c) change if instead of transferring land Rose transferred inventory?
2. Using the original facts of the previous question except that Rose also received from Flower $5 in cash in addition to the stock (which is now worth $95):
a) How much if any gain does Rose recognize?
b) What is Rose's basis in Flower?
c) What is Flower's basis in the land?
d) Instead of $5 cash, Rose receives $5 FMV machine. Does the answer to part (a) change, and what is Rose's basis and holding period for the machine?
3. Annette owns land worth $75 (adjusted basis of $1). She transfers it to Landcorp for voting common stock worth $75. At the same time Helmut agrees to provide legal services for Landcorp in exchange for stock worth $25. There is no other stock in Landcorp.
a) Does Annette recognize gain on the transfer and if yes, how much?
b) What is Landcorp's basis in the land?
c) Does the answer change (and if so how and why) if Helmut receives the stock worth $25, for services worth $20 and fixed assets worth $5?
d) What if Helmut owned the original 100 shares for several years and they are worth $100. Annette transfers land to Landcorp worth $400 (adjusted basis was $12) for 400 new shares voting shares. Would Annette recognize gain on the transfer of the land?
4. Victoria owns land worth $450 in which she has a basis of $125. The land is subject to a mortgage of $100 which Victoria took out several years ago in order to buy the land. She transfers the land to Bari Corp in exchange for all its common stock, and Bari assumes the mortgage.
a) Does Victoria recognize gain on the transfer and if yes, how much?
b) What is Victoria's basis in the stock?
c) What is Bari's basis and holding period in the land?
5. Would your answer to the previous question change (and if so how and why) if the land were subject to a mortgage of $200 which the corporation assumes? Answer separately as to parts a, b, and c.
