Formation of a Corporation

Question 1

What are provisions for recognition of gain/loss on contribution of property for stock in a corporation ?

Answer 1

-Deferral of gain and loss required for members of the control club

Question 2

What is the control club?

Answer 2

-Group of individuals contributing property to corporation and being in control immediately after transfer (80% of voting and nonvoting stock)

Question 3

What are the requirements to be a member of the control club?

Answer 3

• Must contribute property not services in exchange for stock
• NPS treated as boot
• Receipt of boot triggers gain but not loss

Question 4

If boot is received in a Section 351 transfer, what is recognized gain?

Answer 4

-Lower of realized gain or FMV of boot received

Question 5

If stock received for services, what is basis in stock?

Answer 5

-FMV of stock received

Question 6

Do corporations realize any gain or loss on issuing stock?

Answer 6

-No w/ exception for when they assume shareholder’s debt

Question 7

What is the corporation’s basis in property received in exchange for stock?

Answer 7

Shareholder’s basis + recognized gain

Question 8

What is shareholder’s basis in stock received from corporation for property contributed?

Answer 8

Basis of property contributed
+Gain recognized by shareholder
-Boot received by shareholder
-Liabilities assumed by corporation

Question 9

What is the basis adjustment for loss property?

Answer 9

-Allocated proportionately among all assets contributed by shareholder that had a built in loss

Question 10

When do corporations recognize gain on contributions of property?

Answer 10

• If total liabilities assumed by corporation exceed AB transferred by shareholder
• Gain recognized will be liabilities assumed in excess of basis of property contributed

Question 11

What is the shareholder’s holding period in corporate stock received in exchange for property?

Answer 11

• For Capital or Section 1231 assets: carryover basis

- All other property begins on day after transfer

Question 12

What is the corporation’s holding period for property received in exchange for stock?

Answer 12

-Always carryover

Question 13

What happens when additional property contributed to corporation without additional receipt of stock?

Answer 13

-Increases basis of held stock by AB of contributed property