Corp Formation

Question 1

C-corp: during formation, how do you calculate any amount taxable to the SH on contributed property?

Answer 1

No G/L if over if >80% owned immediately after purchase.

If not:
Gain = boot received

Question 2

C-corp: During formation, what amount is taxable to the corporation?

Answer 2

Not taxed.

If SH provides services, taxable @ FMV

Question 3

C-corp: During formation what is the formula to calculate the SH basis?

Answer 3

NBV 
\+ Cash contributions
\+ FMV services rendered 
\+ Gain recognized by SH
- Boot received
- Debt assumed by corp
= SH basis

Question 4

C-corp: what is the calculation of the corporations basis in a contributed asset?

Answer 4

Property = greater of NBV of property (+ any gain recognized by the SH) or debt received by the corporation (less cash received)

Aggregate NBV > Aggregate FMV, corps basis = agg FMV

Question 5

C-corp: what is the tax effect of a non liquidating distribution to a SH in the following situations:
To the extent of Current & Accum E&P?
Distributions in excess of E&P?
Distributions in excess of basis?
Distributions of property (How is the amount calculated, and what is the type of income)?
Stock dividends?

Answer 5

Current & Accum E&P = Taxable Div
Excess of E&P = non taxable ROC
Excess of basis = taxable capital gain
Property/ cash dividends = FMV taxed as Ordinary Income
Stock dividends = only taxable if option

Question 6

C-corp: What is the corporations tax on non liquidating distributions?
How should the gain be categorized regarding E&P?

Answer 6

Only recognize gains in appreciated property (as if sold)
FMV - NBV = GAIN
If debt > FMV, debt = FMV
Add gain to Current E&P

Question 7

C-corp: What is a shareholders basis in property from non liquidating distributions?

Answer 7

Basis in property distribution = FMV

Dividends in excess of Current E&P reduce basis

Question 8

C-corp: What is the tax treatment to the shareholder on a liquidating distribution?

Answer 8

Proceeds or FMV
(Liabilities assumed)
(Stock basis)
= Taxable gain

Question 9

C-corp: What is a shareholders basis in a liquidating distribution?

Answer 9

FMV

Question 10

C-corp: What is a corporations tax impact from a liquidating distribution of property?

Answer 10

Sale price/ FMV
(Liabilities assumed)
(NBV)
= Taxable G/L

Question 11

S-corp: During formation, what is the tax effect on the shareholder from contributed property?

Answer 11

If 80% or more is owned by a control group, AND no receipt of Boot, then no G/L

G/L if boot received - limited to lesser of realized gain, or FMV of boot received

Question 12

S-corp: During formation what is the tax effect to the corporation from contributed property?

Answer 12

Not taxed

Question 13

S-corp: During formation how is the shareholder’s basis calculated?

Answer 13

Adjusted basis of shareholder
+ Gain recognized
- Boot received
- Liabilities transferred to corp (non-recourse libailities do NOT increase shareholder’s at risk basis, but does increase tax basis)

Question 14

S-corp: During formation, how do you calculate the corporation’s basis in contributed property?

Answer 14

Shareholder’s basis

+ Any gain recognized by the Shareholder

Question 15

S-corp: During non-liquidating distributions, what is the tax impact to the shareholder?
To the extent of: 
- AAA (Accum Adj Acct) - aka RE
- If converted from C-corp w/ E&P
- Stock basis
- Excess of stock basis

Answer 15

To the extent S Corp AAA is not subject to tax- decrease basis in stock

To extent of (converted) C Corp w/ E&P (leftover): Taxed as dividend - Does not reduce basis in stock

To extent of stock basis: Not subject to tax - reduces basis in stock (ROC)

Excess of stock basis - LTCG

Question 16

S-corp: During non-liquidating distributions, what is the tax impact on the corporation?

Answer 16

Taxed on distributions from leftover RE (no losses)

Property taxed like C-corp

Question 17

S-corp: During non-liquidating distributions, what is the effect on basis for the shareholder?

Answer 17

AAA = Accum Adjustments Account (RE)

Dividends out of RE of C corp taxable as dividend, but does not reduce basis

Basis is FMV of property received

Stock basis v.s. At-Risk basis

At risk includes separately stated items

Question 18

S-corp: During non-liquidating distributions, what is the formula to calculate the effect on basis to the corporation?

Answer 18

Initial basis (Contributions)
\+ Income
\+ Additional contributions
- Distributions
- Losses
= Partner debt basis

Question 19

S-corp: During liquidating distributions, how do you calculate the tax impact on the shareholder?

Answer 19

Cash received
\+ FMV of property received
- Liabilities assume
Amount realized
- Basis in stock
= Taxable G/L

Question 20

S-corp: During liquidating distributions, what is the effect on basis to the shareholder?

Answer 20

Adjust the basis for the gain on the distribution before the G/L is calculated

Question 21

S-corp: During liquidating distributions, how do you calculate the tax impact on the s-corp?

Answer 21

FMV
- Basis
- Liabilities
= Taxable G/L

Question 22

Partnership: During formation, how do you calculate the tax impact of contributed property by the partner?

Answer 22

General rule: No G/L recognized

Exception: Services provided for capital (ordinary inc)

Excess liability is taxable boot, only subtract liabilities assumed by other partners

Question 23

Partnership: During formation, how do you calculate the partner’s initial basis?

Answer 23

Cash contributions
\+ Property (Adjusted basis)
\+ Services provided (FMV)
- Liabilities transferred or assumed by other partners
\+ Partners share of liabilities assumed
= Partner's initial basis

Question 24

Partnership: During formation, what is the tax impact on the corporation?

Answer 24

Contributions are NOT taxed

Question 25

Partnership: During formation, how do you calculate the basis in contributed property for the corporation?

Answer 25

Carryover basis

+ Any gain recognized by incoming partner

Question 26

Partnership: During a non-liquidating distribution, how do you calculate the tax impact to the partner?

Answer 26

Taxed ONLY if cash distributed is greater than basis (Factor in cash first, then property)

Excess property, not taxable

Question 27

Partnership: During a non-liquidating distribution, how do you calculate the effect on a partner’s basis?

Answer 27

Basis reduced by cash THEN by adjusted basis of property.

Cannot exceed 0 with property - basis is lesser of remaining partnership basis OR NBV of property

Question 28

Partnership: During a non-liquidating distribution, what is the tax impact on the partnership?

Answer 28

Not taxed

Question 29

Partnership: During a non-liquidating distribution, what is the impact on basis to the corporartion?

Answer 29

No effect

Question 30

Partnership: During a liquidating distribution, how do you calculate the amount taxed to the partner?

Answer 30

Recognize a gain ONLY to the extent that money received exceeds basis

Recognize loss, if money, unrealized receivables, or inventory are the only assets received and partner’s basis exceeds the assets

Question 31

Partnership: During a liquidating distribution, what is the effect on the partners basis?

Answer 31

Step 1: Basis - Partnership basis in assets:
Beginning capital account
\+ Share of income (Loss)
= Partner's capital account
 Partner's share of liabilities

Step 2: Adjust basis of any “non-hot” assets back down to FMV (If FMV>NBV)
Adjusted basis in partnership interest
- cash distributions

Step 3: Allocate any basis (Gain) among non-hot assets
Remaining basis to be allocated to assets distributed

Hot assets = Inventory, A/R

Question 32

A partnership may elect to have a tax year other than the generally required tax year if the deferral period for the tax year elected does not exceed how long?

Answer 32

3 months