R4-M1 Corporate Formation

Question 1

what are corporation tax consequences?

Answer 1

• no gain or loss recognized by the corporation issuing stock in exchange for property in the following:
  + formation: issuance of CS
  + Reacquisition: purchase of TS
  + Resale: sale of TS
• Basis of property corporation receives from shareholders/transferor: GREATER of
  + shareholder’s adjusted basis (NBV) of the property, plus any gain recognized by the shareholders, or
  + debt assumed by the corporation
• if the aggregate adjusted basis of the property contributed to a corp by each shareholder in a tax-free incorporation exceeds the aggregate FMV of the property transferred, the corp’s basis in the property is limited to the aggregate FMV of the property. This prevents the transfer with built-in losses to the corp. ex mcq-08208

Question 2

what are tax consequences of shareholder?

Answer 2

• shareholder contributed property in exchange for corp’s CS has no gain or loss if met 2 conditions of IRC section 351:
  + 80% control: must own at least 80% of voting stock and 80% of nonvoting stock
  + No receipt of BOOT: transfer of property must be solely in exchange for stock. Or No cash withdraw or excess debt put into corp.
• A gain is recognized only if: Debt assumed > basis

Question 3

what is a joint venture?

Answer 3

a combination of 2 or more persons who jointly seek a profit from some business venture without designating themselves as an actual partnership or corporation