Chapter 8

Question 1

What occurs when a shareholder transfers property to the corporation for stock?

Answer 1

It is treated as a taxable sale from the shareholder to the corporation.

Question 2

How is gain or loss computed when transferring property to a corporation?

Answer 2

By subtracting the transferor’s adjusted basis in property exchanged from the amount realized in the exchange.

Question 3

What does IRC Section 1001 determine?

Answer 3

The amount and recognition of gain or loss.

Question 4

What is included in the computation of the amount realized?

Answer 4

• Cash received
• Fair market value of property received
• Liabilities assumed by transferee on transferred property
• Selling expenses
• Liabilities assumed by the transferor on transferred property

Question 5

What is the adjusted basis of property transferred?

Answer 5

• Acquisition basis
• Plus: Capital Improvements
• Less: Accumulated depreciation / Cost recovery

Question 6

When does recognition of gain or loss occur?

Answer 6

When it is included in taxable income, not exempted or deferred by tax law.

Question 7

What is the purpose of §351?

Answer 7

It offers deferral of gain on transfers of property to a corporation solely in exchange for stock, where the transferor is in control immediately after the transfer.

Question 8

What must transferors meet to qualify for Section 351 treatment?

Answer 8

• One or more shareholders must transfer property to a corporation.
• Shareholders must receive stock in exchange.
• Transferors must be in control of the corporation immediately after the transfer.

Question 9

What happens in a simple §351 transaction when no boot is received?

Answer 9

No gain or loss is recognized to the shareholder.

Question 10

What is the adjusted basis of stock when no boot is received?

Answer 10

It equals the adjusted tax basis of the property transferred less liabilities assumed by the corporation.

Question 11

What triggers gain recognition when boot is received?

Answer 11

The recognized gain is the lesser of realized gain or fair market value of boot received.

Question 12

In the example of a shareholder contributing an asset with a basis of $100k for stock and cash, what is the recognized gain?

Answer 12

$3,000.

Question 13

What is the adjusted basis of stock in the corporation under §358(a)(1) when boot is received?

Answer 13

• Adjusted basis of property transferred
• Plus: Gain recognized
• Less: FMV of boot
• Less: Liabilities assumed by corp

Question 14

What is the tax basis of the asset received by the corporation?

Answer 14

Tax basis of asset contributed by the shareholder plus gain recognized by the shareholder.

Question 15

What happens when liabilities are transferred to the corporation?

Answer 15

The transferor must reduce their basis in the stock received.

Question 16

What are §1244 stocks?

Answer 16

Stocks from small corporations that allow shareholders to deduct ordinary losses up to $50k ($100k for married filing jointly).

Question 17

What is the difference between taxable and tax-deferred corporate acquisitions?

Answer 17

Taxable acquisitions allow stepping up the tax basis of assets, while tax-deferred acquisitions keep the carryover value.

Question 18

What are the requirements for a Type A Asset Acquisition to be tax-deferred?

Answer 18

• Continuity of interest
• Continuity of business
• Business purpose

Question 19

What is a complete liquidation of a corporation?

Answer 19

When a corporation exchanges its assets for its stock and ceases to do business.

Question 20

How do noncorporate shareholders compute capital gain or loss in a complete liquidation?

Answer 20

By subtracting the stock’s tax basis from the money and FMV of property received.

Question 21

What is a nontaxable liquidating distribution?

Answer 21

Distribution to an 80% corporate shareholder where gain or loss is not recognized.

Question 22

What must be filed to inform the IRS of a corporation’s intention to liquidate?

Answer 22

Form 966.

Question 23

What is the Business Purpose Test in corporate acquisitions?

Answer 23

The acquiring corporation must show a significant non-tax avoidance purpose for the transaction.