Question

Earl and Mary form Crow Corporation. Earl transfers property, basis of $200,000 and value of $1,600,000 for 30 shares in Crow Corporation. Mary transfers property, basis of $80,000 and value of $1,480,000, and agrees to serve as manager of Crow for one year, in return Mary receives 50 shares of Crow. The value of Mary's services is $120,000. With respect to the transfers: a. Mary will not recognize gain or income, X b. Earl will recognize a gain of $1,400,000 c. Crow Corporation has a basis of $1,480,000 in the property it received from Mary. d. Crow will have a business deduction of $120,000 for the value of the services Mary will render. e. None of these - (18) Which of the following statements is incorrect regarding tax planning opportunities for qualifying stock redemptions? a. A corporation that uses installment obligations to finance a redemption can deduct the related interest expense. b. With a "bootstrap acquisition," a third party first acquires a small amount of a corporation's stock, and then the corporation redeems the remaining stock of the other shareholders. c. For the shareholders of a family-owned corporation, the disproportionate redemption represents the best opportunity for a qualifying stock redemption d. The not essentially equivalent redemption is of limited utility and should be considered only as a last resort. e. None of these 19. Saucer Corporation has a value of $800.000, basis in its assets of $670,000, and liabilities of $200,000. Cup Corporation acquires 90% of Saucer's assets by exchanging $550,000 of its voting stock, $20,000 cash, and assuming $150,000 of Saucer's liabilities. The remaining 10% of Saucer's assets not acquired is $80,000 cash. Saucer distributes the Cup stock, S100,000 in cash and associated SS0.000 in liabilities to its shareholder, Sam, in exchange for his Saucer stock (basis $560,000). Saucer then liquidates. How will this transaction be treated for tax purposes? a. As a "Type A reorganization. Sam recognizes $50,000 gain and Saucer recognizes $20,000 gain. b. As a "Type A" reorganization. Sam recognizes $100,000 gain and Saucer recognizes $120,000 gain, c. As a "Type C" reorganization. Sam recognizes $50,000 gain and Saucer recognizes $20,000 gain. d. As a "Type C" reorganization. Sam recognizes $40,000 gain and Saucer recognizes no gain. e. As a taxable transaction.

Answer 1

17 :-

The correct option is D.

The crow will have a business deduction of $120,000 for the value of the services Mary will render.

Explanation:-

This is calculated by the difference between the value of property contributed by Earl $1,600,000 and the value of property contributed by Mary $1,480,000 .

$1,600,000 - $1,480,000 = $120,000