M1 Corporate Formation

Question 1

Corporation Tax Consequences for the corporation issuing stock in exchange for property on the following transactions:
Formation - Issuance of common stock
Reacquisition - purchase of treasury stock
Resale - sale of treasury stock

Answer 1

NO GAIN OR LOSS

Question 2

Corporation tax consequences. Basis of the property the corporation would receive is the GREATER OF?

Answer 2

GREATER OF
1) Adjusted basis (NBV) of the transferor/shareholder (plus any gain recognized by the transferor/shareholder)
OR
2) Debt assumed by corporation

*Nontaxable event = NBV

Question 3

Shareholder tax consequences. No gain/loss under IRC Section 351 two requirements that must be met

Answer 3

1) 80% control immediately after transaction

2) No receipt of boot (Cash withdraw and/or excess debt put into corp)

Question 4

Shareholder tax consequences. Basis of common stock to shareholder is the total of (3 items)

Answer 4

1) Cash (amount contributed)
2) Property (at adjusted basis/NBV amount - NONTAXABLE EVENT)
3) Services (FMV)

Question 5

Shareholder tax consequences. If shareholder receiving common stock exchanges services, what are the tax consequences?

Answer 5

TAXABLE as ordinary income FMV

*Taxable event = FMV

Question 6

Computation of Basis of the Shareholder (PASS KEY)

Answer 6

Adjusted basis of transferred property (incl cash)
\+ FMV services provided
\+ Gain recognized by the shareholder
-Cash received
-Liabilities assumed by the corporation
-FMV of nonmoney boot received
--------------------------
BASIS OF COMMON STOCK