CSU Accounting Management Que

I’m working on a accounting multi-part question and need support to help me learn.

  1. Mike has an idea for a new social media venture. He is going to form a start-up company, raise $150,000 of needed capital and hire an experienced manager to run the business. He has located Saul, a rich investor, who will invest $150,000 and Marie, who has agreed to serve as Manager if the terms are right. The parties agree to form Newco Corp (a C corporation). Mike will transfer tangible assets and intellectual property worth $200,000 (and basis of $50,000); Saul will contribute $150,000 cash; AND Marie will enter into a five-year employment contract. Mike wants to maintain control of the business. Saul wants a guaranteed preferred return but also wants to share in the growth of the company. Marie wants to be fairly compensated (she believes $80,000 per year) and also wants stock in the company but cannot afford a cash investment.

For each scenario, consider whether §351 is met and what are the tax outcomes to each (Mike, Saul and Marie). Be sure and provide an explanation.

  1. Mike gets 200 shares and Saul gets 100 shares of Newco stock. Marie agrees to $40,000 compensation per year and 150 shares of Newco (assume FMV=$1,000 per share).
  1. Same as a. except Marie will receive compensation of $80,000 per year and will transfer an unsecured promissory note for $150,000 (with market interest rate, payable in 5 equal installments) in exchange for her shares.
  2. Same as a. except Marie will pay $20,000 cash for the 150 shares.
  1. A, B, C, D and E, all individuals, form X Corp to engage in a trade or business. X issues 100 shares total. Below is a table of the transfers made by A-E:

Shareholder

Transferred

Basis

FMV

Shares Received

A

Cash

$25,000

$25,000

25

B

Inventory

$5,000

$10,000

10

C

Land Parcel #1

Land Parcel #2

$15,000

$8,000

$10,000

$10,000

20

D

Equipment

$5,000

$25,000

25

E

$20,000 cash

$20,000

$20,000

20

a. Assuming no special elections, what are the tax consequences (gain/loss realized and recognized, what is their basis in the stock received, and what is the holding period of the stock (conceptually, since no years are stated) for each transferor?

b. Assuming no special elections, what are the tax consequences to X Corp?

c. Assume X Corp would like to take the highest basis possible in C’s land, what alternative is available to X and C?

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