Mickey Mickayla and Taylor are starting a new business MMT T

Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey is contributing $228,000 for a 40 percent ownership interest, Mickayla is contributing a building with a value of $228,000 and a tax basis of $171,000 for a 40 percent ownership interest, and Taylor is contributing legal services for a 20 percent ownership interest.

What amount of gain is each owner required to recognize under each of the following alternative situations? [Hint: Look at §351 and §721.]

a. MMT is formed as a C corporation

b. MMT is formed as an S corporation.

c. MMT is formed as a LLC.

Solution

Ans A If it is a C corporation Mickey $0 Mickayla $0 Taylor $114,000.0 As per section 351 Mickey and Mickayla mwill not recognize any gain As they transferred the asset. Taylor contributed services hence would recognize gain Taylor gain Capital Mickey $228,000 Mickayla $228,000 1 This is 80% capital $456,000 Total capital 456000/.8 $570,000.0 Taylor share 20% Taylor capital $114,000.0 Ans b If it is a S corporation Mickey $0 Mickayla $0 Taylor $114,000.0 ans c If its LLC Mickey $0 Mickayla $0 Taylor $114,000.0 If any doubt please comment. If satisfied you can rate