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4) Dan, a lawyer, owns a real estate company with a basis of $10,000 and a fair market value of $18,000.

Question

4) Dan, a lawyer, owns a real estate company with a basis of $10,000 and a fair market value of $18,000.

Elite has outstanding 100 shares, all held by Mr. Able. Elite issues 400 additional shares of its common stock (having fair market value of $18,000) to dan in exchange for his property worth $18,000.

A. Dan does not qualify for IRC 351 treatment because he has transferred his property to elite in a separate and distinct transaction from Mr. Able

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B. Dan qualifies for section 351 treatment because he acquired “control” of Elite and Mr. Able must file an amendment returns covering his previous transfers to elite due to his loss of control.

C. The gain realized on the transfer is recognized in full by Dan because he occasionally renders legal services to Elite.

D. The transfer is not taxable to Dan or Elite due to the application of Section 351 and 1032.

5) In question 4, what is Dan’s adjusted basis in his Elite shares?

6) In question 4, what is Elite’s adjusted basis in the real estate acquired from Dan?

 7) How much gain, if any, would Dan have recognized if he transferred the real estate to Elite subject to an existing indebtedness of $14,000 and what adjusted basis would have resulted in questions 5 and 6?

A.____________________________________________________ 

B.____________________________________________________ 

C.____________________________________________________ 

8) In question 4, assume that in addition to the 400 shares received by Dan for his real estate, that he received an additional 50 shares in payment for certain legal services rendered by him in connection with the incorporation of Elite. As a result of the receipt of these shares for services:

A. All 450 shares received by Dan are currently taxable

B. All 450 shares received by Dan are non-taxable since shares are counted in determining control if significant amounts of property are also transferred to the corporation by the service provider in the same transaction.

C. The 400 shares received for the real estate are non-taxable and the 50 shares received for services are currently taxable.

9) If Dan held the real estate for 4 years, how long will he be deemed to have held his newly acquired Elite shares referable to the real estate?

The shares referable to services?

 
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