Question 1

Two individuals form an entity. A contributes cash. B contributes appreciated property (Basis $10k, FMV $100k) for a 50% interest. B wants to avoid immediate gain recognition but wants the flexibility to distribute the property back to himself tax-free in the future if the business dissolves. Which entity is best?

Accepted Answer

Analyze exit strategies. Corporations (C or S) trigger gain on distribution of appreciated property (IRC §311/§336). Partnerships generally do not (IRC §731).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Assuming S Corps allow tax-free property distributions.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 3

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