M1: Corporate Formation

Question 1

Corporation Tax consequences

Answer 1

General rule: no gain or loss to the corp. issuing stock in exchange for property in the following transactions:
Formation-issuance common stock
reacquisition - purchase of treasure stock
resale: sale of treasury stock

Question 2

Basis of Property (Corporation receives) = non taxable

Answer 2

general rule: adjusted basis (net book value) from the transferor/shareholder is the Greater of
1 adjusted basis (plus any gain recognized by the transferor/shareholder) or
2 debt assumed by corporation (transferor may recognize gain to prevent negative basis

Question 3

Shareholder Tax Consequences

Answer 3

No gain or loss if the following have been met

1. 80 percent control
2. No receipt of Boot (cash withdrawn or excess dept put into corp.)

Liabilities in excess of Basis = Gain & reduced basis of property & brings shareholders stock basis to zero (when debt exceeds the assets adjusted basis)

Question 4

Accrual method of accounting for tax purposes

Answer 4

C corporations, trusts with unrelated trade or business income, and partnerships having a C corporation as a partner provided the business has greater than $5 million average annual gross receipts for the three-year period ending with the tax year