Problem 2-1 o Ben and Jerry organize their new entity as an LLC on May 16th of the year 1. What is the default tax classification for this entity? Are there any alternative classification(s) available? If so, how do Ben and Jerry elect one of these alternate classification(s) and what are the tax consequences of doing so? · Problem 2-2 o On February 1 of year 1, Richard, Mike, Patrick, and Sean form Brothers Corp and transfer the following items: Property Transferred Transferor Asset Basis to Transferor FMV Number of Common Shares Issued Richard Land 12000 30000 400 Building 38000 70000 Mortgage on Land and Building 60000 60000 Mike Machines 25000 40000 300 Patrick Truck 15000 10000 50 Sean Legal Services 0 10000 100 Richard purchased the building and land several years ago, $50,000 for the building, and $12,000 for the land. Depreciation has been claimed using the straight line method. In addition to the machines, Mike received a note from Brothers corp. due in 3 years for $10,000 at the market interest rate. Mike originally purchase the machines 3 years ago for $50,000. In addition to the truck, Patrick received a cash payment of $5,000. Patrick’s truck is 2 years old with an original price of $20,000. (a) Does the transaction meet the requirements of section 351? (b) What are the amounts of the gains or losses recognized by Richard, Mike, Patrick, Sean, and Brothers? (c) What is each shareholder’s basis in their Brothers stock? When does the holding period for the stock begin? (d) What is Brothers’ basis in its property and services? When does the holding period for each property begin? · Problem 2-3 o On June 24th of year 1, Alec, Bryce, and Connor form Triplets Corporation. They transfer the following assets: Property Transferred Transferor Asset Basis to Transferor FMV Number of Common Shares Issued Alec Land $200,000.00 $50,000.00 500 Bryce Production Equipment - 25,000.00 250 Connor Accounting Services - 25,000.00 250 Alec purchased the land 5 years ago for $200,000. Bryce purchase the production equipment 3 years ago for $48,000 and it is fully depreciated. (a) Does the transaction meet the requirements of section 351? (b) What are the amounts of the gains or losses recognized by Alec, Bryce, Connor, and Triplets? (c) What is each shareholders basis in their stock? When does the holding period for the stock begin? (d) What is Triplets’ basis in each asset? When does the holding period begin for each asset? (e) How might they restructure this transaction to make it more beneficial from a tax perspective? Read the scenario and respond to the questions. Support your answers with calculations
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