Chapter 2

Question 0

Requirement for deferral of gain/loss Sec 351(a)

Answer 0

1) must transfer property
2) must receive stock in exchange
3) must have control of corporation after exchange

Question 1

Transferors - how is gain realized calculated?

taxable & nontaxable calculated the same

Answer 1

Taxable transfer
\+ FMV of stock
\+ Cash
\+ FMV of boot
\+ amt of liabilities assumed
- MINUS adj basis of transferred property
= realized gain Sec 1001a

Question 2

Sec 351 - Property requirement

Answer 2

cash and/or almost any other asset

Excluded: services - services in exchange must always recognize ordinary income for the FMV of stock received

Question 3

Sec 351 - Control requirement

Answer 3

at least 80% ownership of voting stock and 80% of all other classes of stock

Question 4

Sec 351 - transferors of both property and services

Answer 4

all of the stock received by that person is counted toward the 80% control threshold

Question 5

Sec 351 - transferor receives boot

Answer 5

if transferor receives any money or property other than stock, it is considered boot

transferor recognizes gain to the lesser of the realized gain or the FMV of the boot property received

Question 6

Transferor - gain recognized (taxable transfer)

Answer 6

Transferors recognize the entire amount of realized gain

Losses may be disallowed under related party rules

Question 7

Transferor - when is gain recognized (Sec 351)

Answer 7

recognize none of the realized gain UNLESS one of the following

1) boot property is received
2) liabilities are transferred to the corp for nonbusiness or tax avoidance
3) liabilities exceeding basis are transferred
4) services are transferred (recognize regular income)

Question 8

Taxable Property transfer - Basis

Answer 8

FMV

Question 9

Transferor Basis of property received - Sec 351

Answer 9

Basis of property transferred
\+ gain recognized
- money received
- FMV of noncash boot property
- liabilities assumed by corp
= adjusted basis of stock received

Question 10

Transferee - Gain recognized

Answer 10

corporation recognizes no gain or loss on exchange of its own stock

Question 11

Transferee - basis

Answer 11

FMV for taxable transfer

351
same as in transferor's hands
\+ gain recognized by transferor
- reduction for loss 
= transferee corp basis in property

If total adjusted basis > FMV, total basis is limited to the property’s FMV

Question 12

If an existing stockholder transfers property for additional stock to enable another shareholder to qualify for tax deferred 351 treatment…
How much must the stock received be valued?

Answer 12

At least 10% of the value of the stock already owned

Question 13

Sec 351 - required holding period before transferring stock?

Answer 13

As long as there was not a PRE-ARRANGED sale of acquired stock, there is no minimum holding period to disallow the 351 deferral

Question 14

Sec 351 - transferor recognize loss

Answer 14

Never recognize loss in 351 exchange, whether or not boot is received