Address the following scenarios: Susanne transferred a building (adjusted basis of $200,000 and fair market value of $310,000) to Zerec Corporation. In return, Susanne received 80% of Zerec...

Address the following scenarios:

1. Susanne transferred a building (adjusted basis of $200,000 and fair market value of $310,000) to Zerec Corporation. In return, Susanne received 80% of Zerec Corporation's stock (worth $180,000) and an automobile (fair market value of $50,000). In addition, there is an outstanding mortgage of $210,000, held for 5 years, on the building that Zerec Corporation assumed. With respect to this transaction, what is Susanne's recognized gain?


2. Fredrick transfers land worth $200,000, basis of $100,000, to a newly formed corporation, Relast Corporation, for all of Relast’s stock, worth $125,000, and a 10-year note. The note was executed by Relast and made payable to Fredrick in the amount of $75,000. As a result of the transfer, what is Fredrick’s recognized gain?


3. Peggy owns 50% of the stock of Oakdale Corporation. She and the other 50% shareholder, Janet, have decided that additional contributions of capital are needed if Oakdale is to remain successful in its competitive industry. The two shareholders have agreed that Peggy will contribute assets having a value of $200,000 (adjusted basis of $15,000) in exchange for additional shares of stock. After the transaction, Peggy will hold 75% of Oakdale Corporation and Janet’s interest will fall to 25%.
   
   
   1. What gain is realized on the transaction? How much of the gain will be recognized?
   
   
   2. Peggy is not satisfied with the transaction as proposed. How will the consequences change if Janet agrees to transfer $1,000 of cash in exchange for additional stock? In this case, Peggy will own slightly less than 75% of Oakdale and Janet's interest will be slightly more than 25%.
   
   
   3. If Peggy still is not satisfied with the result, what should be done to avoid any gain recognition?
   
   
   
   


4. Stock in Boland Corporation (555 Pinewood Lane, Duncan, AL 73336) is held equally by Linda, Lester, and John. Boland seeks additional capital in the amount of $900,000 to construct a building. Linda, Lester, and John each propose to lend Boland Corporation $300,000, taking from Boland a $300,000 four-year note with interest payable annually at two points below the prime rate. Boland Corporation has current taxable income of $2 million. You represent Boland Corporation. Boland's president, Frank Conner, asks you how the payments on the notes might be treated for tax purposes. Prepare a letter to Conner in which you document your conclusions.

Submission Guidelines:

• Submit your answers in a 3-4 page Microsoft Word document or in a Microsoft Excel spreadsheet.


• Also submit your completed sections of theFederal Tax Form 1040and supporting forms where required.