9.1 - Corporate Tax Special Topics - Formation Flashcards
What is section 351?
A mandatory nonrecognition treatment requiring that no gain or loss be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in the corporation and, immediately after the exchange, such person or persons control the corporation.
Define control?
Ownership of 80% or more of the voting power of stock and 80% or more of the shares of each class of nonvoting stock of the corporation.
Is stock exchanged for services counted toward the 80% ownership limitation?
No – the FMV of the stock is GI to the shareholder & the shareholder’s basis in the stock exchanged for services is its FMV
How is non-qualified preferred stock treated?
As boot rec’d and is not counted as stock toward the 80% ownership test
Does Section 351 mandatory nonrecognition still apply if the shareholder receives some boot (money or property) in the exchange if the exchange is solely for stock in the corporation?
Yes
Can section 351 apply to an exchange after formation?
Yes
Can section 351 apply to contributions of property even if the corporation issues no stock in the exchange (e.g. capital contribution by a sole shareholder who receives no stock in exchange for the contribution?
Yes
Does section 351 apply when the corporation exchanges treasury stock?
Yes
Is disparate value (inequality of FMV of the stock and property exchanged) relevant in section 351?
No – not in itself
True or False»_space;> the shareholder may have GI if the disparity represents an (unstated) additional transaction, e.g. payment of compensation, a constructive dividend.
True
How is section 351 effected if the corporation assumes the shareholder’s liability or takes property subject to a liability in the exchange?
Section 351 nonrecognition still applies
Does the corporation recognize gain on exchange of its stock for property (including money)?
No
What is the control group shareholder’s basis in the stock of a corporation?
The AB in contributed property adjusted for the boot rec’d and the gain recognized.
Calculate basis in stock of issuing corporation.
AB in contributed property – Boot rec’d + Gain recognized (by shareholder)
How are liabilities treated when computing stock basis?
As boot
How is the holding period treated in a transaction where property is exchanged for stock?
The holding period of the property exchanged is added to the holding period of the stock
How is the holding period treated for capital assets and other assets (section 1231 property) that are contributed when incorporating a business?
Each share rec’d in the exchange has a split holding period
What is the basis of shareholder in boot?
FMV
What is the corporation’s initial carryover basis in property exchanged by a control group shareholder for its stock?
Adjusted carryover basis
Calculate basis in property to corporation.
AB in property to shareholder + Gain recognized by shareholder
Do the “Basis in property to corporation” apply when the shareholder receives nothing in return?
Yes
How is allowable depreciation apportioned?
Based on the number of months the corporation owned the asset
What is the initial depreciable basis in exchanged property?
An adjusted carryover basis or basis in property to corporation
How is holding period adjusted for exchanged property?
The holding period is tacked (the holding period of the item exchanged for the property is added to the holding period of the newly acquired property)
