Question

Jen, an accountant, is a sole proprietor working in Queens, NY. Jen decides that she wants to incorporate her business and that such business would be taxed as a C-corporation. When Jen incorporates, she contributes various property and cash including her accounts receivable from her sole proprietor business. Several days after incorporating, Jen decides to bring another accountant, Sam, into her team and 8 entices him with a shareholder interest in the newly incorporated company. Which of the following statements is correct? A. When the corporation receives the income from the accounts receivable from Jen’s prior sole proprietorship, such income must be reported by the corporation. B. Jen would recognize a gain on the transfer to the corporation because she never had control C. Jen will be required to include the income from the accounts receivable from her prior sole proprietorship in her income if the transfer of the accounts receivable was done for a tax-avoidance purpose. D. Jen and Sam may recognize a gain/loss upon the transfer of the stock from Jen to Sam. E. Only a. and b. are correct. F. a., b., and c. are correct. G. c., and d. are correct

Answer 1

The Correct statements are:

A.When the corporation receives the income from the accounts receivable from Jen’s prior sole proprietorship, such income must be reported by the corporation.

B. Jen would recognize a gain on the transfer to the corporation because she never had control

C. Jen will be required to include the income from the accounts receivable from her prior sole proprietorship in her income if the transfer of the accounts receivable was done for a tax-avoidance purpose.