Corporate Formation

Question 1

What are the membership requirements for a control club?

Answer 1

1. Property must be contributed (not services) to count toward control test;
2. Must be transferred solely in exchange for stock;
3. Immediately after transfers, members contributing property must own at least 80% of voting and nonvoting stock;
4. Receipt of boot triggers gain but not loss.

Question 2

What is considered a boot in a control club transaction?

Answer 2

Property received other than stock.

Question 3

What is a corporation’s basis for property received from the transfer by a control club member?

Answer 3

The adjusted basis in the property from the transferor plus any gain recognized by the transferor.

Question 4

Define “control club.”

Answer 4

The group of individuals who participate in a transfer of property to a corporation and are in control of the corporation immediately after the transfer.

Question 5

What is the importance of being a control club member?

Answer 5

Deferral of gain and loss is required for members of the control club.

Question 6

What is the basis for stock received from property transferred to a corporation by a control club member?

Answer 6

The adjusted basis of the transferred property plus any gain recognized less any boot received less any liabilities assumed by the corporation.