Reference no: EM132460453

Four friends plan to form a corporation for purposes of constructing a shopping center. Charlie will be contributing the land for the project and wants more security than shareholder status provides. He is contemplating two possibilities: receive corporate bonds for his land, or take out a mortgage on the land before transferring it to the corporation.

Question 1: Complete the statements below regarding Charlie's tax scenario.

If the real estate is appreciated, _______________(the mortgage scenario, the bonds scenario, or either scenario) results in gain being __________(realized but not recognized, realized and recognized, or realized and deferred) by Charlie. One possible alternative is to use __________(cash, preferred stock, or non-qualified preferred stock) . To be nontaxable, however, the transfer should be tied to the _________(reorganization, original incorporation, or sale) of the business. Otherwise, the __________("boot", debt to equity, or 80% control) requirement might not be satisfied.