What are the tax consequences of the corporate formation

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Question - Corporate Formation/Corporate Liquidation. Len Wallace contributed assets with a $100,000 adjusted basis and a $400,000 FMV to Ace Corporation in exchange for all of its single class of stock. The corporation conducted operations for five years and was liquidated. Len received a liquidating distribution of $500,000 cash (less federal income taxes owed on the liquidation by the corporation) and the assets that he had contributed which now have a $100,000 adjusted basis and a $500,000 FMV. Assume a 34% corporate tax rate.

a. What are the tax consequences of the corporate formation transaction?

b. What are the tax consequences of the corporate liquidation transaction?

c. Would your answers to Parts a and b remain the same if instead the assets had been contributed by Wallace Corporation to Ace Corporation? If not, explain how your answer(s) would change?

Reference no: EM131775535

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