Topic 7 Corporate Formations

Question 1

Corporations formed under ____ are tax deferred

Answer 1

§351

Question 2

To form a corporation under §351 one or more persons ________ ________ for stock AND ___________ after the transfer, these same shareholders _______ the corporation.

Answer 2

transfer property; immediately; control

Question 3

For §351 formed corporations, property received other than stock is ____ and will cause ____ recognition but not ____ recognition.

Answer 3

boot; gain; loss

Question 4

For §351 formed corporations, control is __% or more of the total combined ______ _____ of all voting stock AND __% or more of total number of shares of each class of _________ _____.

Answer 4

80%; voting stock

80%; nonvoting stock

Question 5

When §351 tax deferred corporation is formed, the stock receives a _________ _____ from the property that is transferred. What is the calculation formula?

Answer 5

substitute basis
cash contributed
ADD tax basis of other property contributed
LESS liabilities assumed by the corporation on property contributed
= tax basis of stock received

Question 6

Sometime corporations give property and stock. The property received is called ____ and causes a realized ____ that has to be recognized.

Answer 6

boot; gain

Question 7

The gain recognized from boot is not to exceed the lesser of ____ ________ or ___ of boot received.

Answer 7

gain realized; FMV

Question 8

Boot is ________ to each contributed property using the _______ ___ of the properties.

Answer 8

allocated; relative FMV

Question 9

The character of the gain caused from boot is determined by the ____ of property which the gain is allocated.

Answer 9

type

Question 10

What is the stock tax basis formula to use when boot is included in a §351 transaction?

Answer 10

cash contributed
ADD tax basis of other property contributed
ADD gain recognized on the transfer
LESS FMV of boot received
LESS liabilities assumed by the corporation on property contributed
= tax basis of stock received

Question 11

Generally, in a §351 transaction, the assumption of shareholder liability (is/is not) boot.

Answer 11

is not

Question 12

In a §351 transaction, shareholder liabilities can be considered boot with these exceptions:

1) contribution is to _____ federal income tax OR
2) no business _______ for assumption

Answer 12

avoid; purpose

Question 13

If a gain must be recognized on the assumption of liabilities, then the taxpayer recognizes the gain to the extent the liabilities assumed exceed _________ tax basis of properties transferred, allocated by character based on ________ ___ of the assets.

Answer 13

aggregate; relative FMV

Question 14

When the liabilities assumed give rise to a _________, they are ___________ in determining whether the liabilities assumed exceed basis.

Answer 14

deduction; disregarded

Question 15

§351 Corporation Consequences:

• there is no ___/____ on receipt of property in exchange for stock
• non §351 - ___ basis in property
• §351 - ________ basis from transferor, as well as holding period
• if shareholder recognized gain it _________ tax basis to the corporation

Answer 15

gain/loss
FMV
carryover
increases