Your client, Cara Ramos, is forming a T-shirt business, Equitees, with three of her colleagues. Each has something to contribute to the business. ⚫ Cara is contributing property (land) that has a debt (mortgage) on it, encumbered property. She will receive a 30% stock of the company. It is important to note, since the land still has a mortgage on it, the business will be assuming this existing mortgage. ⚫ Michael is contributing cash to the business and will receive a 30% stock. ⚫ Cathy is contributing property (machinery). The property, while without debt, has been used in her own previous business and has depreciated in value over the years. Cathy will receive 30% equity in return for her contribution. • Nate doesn't have anything to contribute, so he is going to perform services (managing the business) for the corporation. On the open market, his services are worth approximately $50,000 a year. In return, he will not receive compensation but 10% equity instead. The group's lawyer is advising them that their form of corporation should be a C Corporation, to best position themselves for potential future sale or for a venture capital investor. The lawyer will handle the legal aspect of putting together the corporation, everything from creating bylaws to filings. In total, the company needs about $500,000 to get the business off the ground.
Your client, Cara Ramos, is forming a T-shirt business, Equitees, with three of her colleagues. Each has something to contribute to the business. ⚫ Cara is contributing property (land) that has a debt (mortgage) on it, encumbered property. She will receive a 30% stock of the company. It is important to note, since the land still has a mortgage on it, the business will be assuming this existing mortgage. ⚫ Michael is contributing cash to the business and will receive a 30% stock. ⚫ Cathy is contributing property (machinery). The property, while without debt, has been used in her own previous business and has depreciated in value over the years. Cathy will receive 30% equity in return for her contribution. • Nate doesn't have anything to contribute, so he is going to perform services (managing the business) for the corporation. On the open market, his services are worth approximately $50,000 a year. In return, he will not receive compensation but 10% equity instead. The group's lawyer is advising them that their form of corporation should be a C Corporation, to best position themselves for potential future sale or for a venture capital investor. The lawyer will handle the legal aspect of putting together the corporation, everything from creating bylaws to filings. In total, the company needs about $500,000 to get the business off the ground.
Chapter13: Choice Of Business Entity—general Tax And Nontax Factors/formation
Section: Chapter Questions
Problem 47P
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Question
Calculate the following for the Corporation that is receiving the properties/services
- FMV of property received
- Adjusted basis of property received
- Applicable basis code section
- Realized gain (income) on property
- Recognized gain (income) on property
- Gain (income) deferred, if present
Transcribed Image Text:Your client, Cara Ramos, is forming a T-shirt business, Equitees, with three of her colleagues. Each has something to contribute to the business.
⚫ Cara is contributing property (land) that has a debt (mortgage) on it, encumbered property. She will receive a 30% stock of the company. It is
important to note, since the land still has a mortgage on it, the business will be assuming this existing mortgage.
⚫ Michael is contributing cash to the business and will receive a 30% stock.
⚫ Cathy is contributing property (machinery). The property, while without debt, has been used in her own previous business and has depreciated in
value over the years. Cathy will receive 30% equity in return for her contribution.
• Nate doesn't have anything to contribute, so he is going to perform services (managing the business) for the corporation. On the open market, his
services are worth approximately $50,000 a year. In return, he will not receive compensation but 10% equity instead.
The group's lawyer is advising them that their form of corporation should be a C Corporation, to best position themselves for potential future sale or for
a venture capital investor. The lawyer will handle the legal aspect of putting together the corporation, everything from creating bylaws to filings.
In total, the company needs about $500,000 to get the business off the ground.
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