R4 - Corp Formation

Question 1

Basis of Property that Corp Receives

Answer 1

Greater of: 
- NBV 
- Debt Assumed by Corp
PLUS
- Gain Recognized by SH/Cash corp pays for property

Question 2

Does Corp recognize Gain?

Answer 2

Not when,at formation, the corp issues stock in exchange for property

Question 3

What are the conditions that need to be met on a Sec 351 transaction (no gain recognized)?

Answer 3

• 80% Control (all SH involved in transactions)

- No boot receipt

Question 4

Who is not part of a controlled group (Sec 351)?

Answer 4

A SH that only contributes services.

Question 5

SH Taxable Gain from boot received

Answer 5

From boot received:
- Cash withdrawn
- Receipt of Debt Securities (bonds)
OR
Liabilities in Excess of Basis
NBV - Liability = Taxable Gain

Question 6

SH Recognized Gain

Answer 6

Lesser of Realized Gain or Boot received.

Question 7

Shareholder’s Basis of Common Stock

Answer 7

(+) Cash contributed 
(+) NBV of prop contributed
(+) Services (FMV)
(+) Gain recognized
(-) Cash distributed (to SH)
(-) Liabilities assumed by corp 
(-) Non money boot received
(=) BASIS; if <0, then basis = 0 and recognize gain (can't be negative)

Question 8

Shareholder’s Basis When No Boot is Received

Answer 8

• No taxable event

- Basis = NBV of prop contributed

Question 9

Shareholder’s Basis When Boot is Received

Answer 9

• Taxable Event

- NBV + Gain Recognized - FMV Boot = Adj Basis of Stock