R3 - big topic 1/3 - C Corp

Question 1

5 stages of corporation

Answer 1

1. formation
2. operations.
3. taxation
4. distribution
5. liquidation

Question 2

1. Formation - Corporation tax consequences

Answer 2

General Rule - No gain or loss recognized
(formation - issue common stock; reacquisition - purchase treasury stock; resale - sale treasury stock)
**property basis = GREATER of adjusted basis (aka net book value) OR Debt assumed by corporation

10,000 adjusted basis of building
22,500 bank loan (mortgage before forming the corp)
50,000 fair market value (irrelevant)

property basis on corp’s book = 22,500

Question 3

1. Formation - Shareholder tax consequences

Answer 3

No gain or loss recognized IF:

1) after transaction, shareholders (group) controls >80% of stock
2) no boot received

COD (cancellation of debt)

• *adjusted basis of property > debt ->no gain no boot
• *adjusted basis of property < debt -> excess liability (that shareholder gets rid of), gain, boot taxable

BASIS of Common Stock
- cash = cash
- property = adjusted basis - debt (COD)
10,000 adjusted basis - 22,500 debt = -12,500 (excess liability, gain! boot!) -> -12,500 is stock basis. 负数
10,000 adjusted basis - 5,000 debt = 5,000 (no gain no boot) -> 5,000 is stock basis. 正
- Service - fair market value (TAXABLE)

Question 4

2. Operations - CORE Formula

Answer 4

TAX Return income
Gross income 
- deductions 
= A
- Charity 
= B
- DRD
=Taxable income

GAAP Income
IDEA = Net income
**DE = net of tax

M-1 Reconciliation