11-24

The significant tax issue within the questions could be if the incorporation transaction is found to
be an event that is nontaxable in accordance within the section 351.
Moreover, the secondary tax issues could incorporate the following:
1. Determining the basis of the corporations assets contributed.
2. Making an election for the period of accounting i.e. a tax year.
3. Making an S election for the new corporation involving format, time, and the required
consents.
4. Making an election for the method of accounting i.e. accrual or cash method of
accounting.
5. Determining the amount and character of the recognized gain on the transaction on the
level of partnership, on an individual level and corporation level as well.
6. Could it be better off for these two tax payers for liquidating the partnership first and then
to making a contribution of the assets to the new corporation?
11-25
The significant tax issue within the question is to make an election of S for the new corporation
involving format, time and the required content. Some of the secondary tax issues incorporate the
following:
1.
2.
3.
4.

Dealing with the LIFO recapture liability of the tax on the final C Corporations return
Considering the excessive net passive income tax liability for the S corporation.
Consideration of built in gains for the S corporations tax liability
Making an election for the period of accounting that is tax year.

W corporation ought to file form 2553 for a S election. Apart from this, the filing ought to be
done within a time period that is reasonable. The contents that are proper and appropriate by the
shareholder i.e. Dan. Additionally, W corporation ought to amend the tax year to the calendar
year. However, if no special election for the period of accounting is made by the W corporation,
they would go with the prior period of accounting

11-26

A significant issue of tax within the question is that how the ordinary loss of around $375,000
will be dealt with. An S corporation is found to be a pass-through entity passing through an
ordinary loss. As Air South Corporation is found to be a S corporation and that P owns 50
percent of Air South Corporation, of $375000 ordinary loss or $187500 is passed through to P.
As the adjusted basis of P within the stock of Air sport corporation is $100000. Hence, the loss
deduction is found to be constrained to $100,000.
11-27
The major tax issue within the question is to make a determination of the character and amount
of the recognized gain on the shareholders distribution. The secondary tax issues include the
following:
1. Determining the bases of shareholders along with the holding periods for the received
land.
2. Considering the tax liability in accordance with the built-in gains on the distribution.
3. Determining the basis of the shareholders within the stock of the corporation before and
after the distribution.
Gain Realized = Amount realized Adjusted basis = 300,000 -75000 = $225,000
Basis of Adam within the stock:
Original basis + Increased amount through the distribution + Increased amount by the ordinary
income
175000+225000/2 + 125000/2
$350,000
Rodneys basis in the stock:
225000+225000/2+125000/2 = $400,000
After the distribution of the land, each basis of the shareholder within the stock is diminished by
$150,000