Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey is contributing $260,000 for a 40 percent ownership interest, Mickayla is contributing a building with a value of $260,000 and a tax basis of $165,000 for a 40 percent ownership interest, and Taylor is contributing legal services for a 20 percent ownership interest. What amount of gain is each owner required to recognize under each of the following alternative situations? [Hint: Look at §351 and §721.] (Leave no answer blank. Enter zero if applicable.)
a. MMT is formed as a C corporation.
Answer :
a. MMT is formed as a C corporation.
Mickey | $0 |
Mickayla | $0 |
Taylor | $130,000 |
Explanation:
As per Section 351 , no gain or loss is recognized when starting a new business , taxpayer gets only stock in exchange of property invested in the business . Accordingly Mickey & Mickayla are not require to recognize any gain.
However Taylor is contributing legal services instead of any property . Thus he is require to recognize gain.
Gain to be recognize by Taylor = [($260,000 + $260,000) / 80 %] * 20 %
= $650,000 * 20 % = $130,000
Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey...
Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey is contributing $260,000 for a 40 percent ownership interest, Mickayla is contributing a building with a value of $260,000 and a tax basis of $165,000 for a 40 percent ownership interest, and Taylor is contributing legal services for a 20 percent ownership interest. What amount of gain is each owner required to recognize under each of the following alternative situations? [Hint: Look at §351...
Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey is contributing $260,000 for a 40 percent ownership interest, Mickayla is contributing a building with a value of $260,000 and a tax basis of $165,000 for a 40 percent ownership interest, and Taylor is contributing legal services for a 20 percent ownership interest. What amount of gain is each owner required to recognize under each of the following alternative situations? [Hint: Look at §351...
Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey is contributing $315,000 for a 40 percent ownership interest, Mickayla is contributing a building with a value of $315,000 and a tax basis of $178,750 for a 40 percent ownership interest, and Taylor is contributing legal services for a 20 percent ownership interest. What amount of gain is each owner required to recognize under each of the following alternative situations? [Hint: Look at §351...
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