C Corp: Formation Flashcards
C Corporations are separate entities from their owners. For this reason, C corporations provide ______ liability.
Limited
What are the tax rates that apply to C corporations?
Under TCJA, C Corporations have one flat tax at 21%
What are 351 exchanges?
A section 351 exchange is a tax free exchange when a taxpayer exchanges basis in property for stocks in a corporation at formation. It only counts as a 351 exchange if the taxpayer has control after the exchange (at least 80% ownership)
Under a 351 exchange that involves cash and property, what is the new basis and the holding period?
When contributors of cash and/or property gain 80% control or more of the corporate stock (aka a 351 exchange), the basis and holding period are carried over from the contributor.
What is the tax treatment for when a taxpayer contributes services in exchange for 80% of corporate stock?
Services never count as a 351 exchange. Therefore, the contributor would include the FMV of the stock received in their taxable income.
The corporation would book a wage expense for the payment of the stock.
What is the tax treatment for when a taxpayer contributes cash for 30% of corporate stock?
Since the contributor does not gain control through the exchange (control= at least 80%), the exchange becomes taxable to all parties.
The contributor would recognize the FMV of the stock received as income.
The Corporation would recognize the difference between the FMV of the stock and the adjusted basis as a gain.
Nonrecognition of gain applies only to amounts transferred solely in exchange for stock. If the shareholder received boot in addition to stock, a gain is recognized up to the boot received.
What would be considered boot?
Boot = Cash or FMV of other property received
Under 351 exchanges, what is the formula to calculate the shareholder’s basis in stock received?
\+ Adjusted Basis \+ Recognized Gain (any Boot received) \+ Cash Paid \+ Liabilities Assumed \+ Transaction Costs and Fees - (Cash Received) - (FMV of Property Received) - ( Liabilities Transferred)
Under 351 exchanges, what is the formula to calculate the corporation’s basis in property received?
+ Adjusted Basis
+ Gain recognized by the contributor (aka any boot given to the contributor)
What is the tax treatment for reorgs?
Same as 351 exchanges - stock for stock, nonrecognition unless boot is received. Carryover basis and carryover holding period.
What is a type A reorg:
Mergers or consolidations
What is a type B reorg:
Using voting stock in the current corp to acquire at least 80% of the all classes of voting stock in the new corp
What is a type C reorg:
Using voting stock in the current corp to acquire substantially all of the net assets in the new corp
What is a type D reorg:
Using assets in the current corp to acquire at least 80% of control of the new corp
What is a type E reorg:
Changing the capital structure of the current corp
