Chap. 19 Notes

Chap. 19 Notes - -Chapter l9We are beginning two chapters...

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Unformatted text preview: \.--Chapter l9We are beginning two chapters fbcusing on Corporation transactions. Basicalll', there are two rnain subjects:L Forming a corporation. 2. Corporate operation with varietl'of toprics$ 35f Transfers{ 35l-deals with how we fund the corporation. We are looking at shareholder or shareholders transf'erringassets to the corporation in exchange for stocky. We will talk about it'this kind of transacticl.r is tarable event. Ifso, what parlicular rules are follow for the calculatiorr of the taxable amountThis ty'pe of transaction can take part when nevy corporation is being fo.* requiredfor the existing corporation., They have the same rules. These rules are mandatory, we have no choice, but tofollow and imply.Let's talk a look at Page 19-30.gnized if property is transferred to a corporation by one or more persocorporation and immediately after the exchange siich person or persoisxr It is Properly transfer, not mention any'thing about service. Excluded the One or more persons, we couid group the whole class to form a corporation. All of us can contributeproperties to the corporation in exchange of the stock. This rule can apply to all of us, not just one of us.**Immediately after the exchange such person or persons are in control of. The control is defined as owning atleast 807o of the stocks. For example, if we all are the only shareholders of the corporation, we will meet therequirement because all of us together will own l00o of the corporation (>80%), The control test will be met.In this case, nolle of us will recognize any gain or loss in connection of this transactionKey questions:l: Will the shareholder or shareholders have to recognize any gain or loss? NO. As long as they just transferthe property solell' exchange for the stock and looking at them as a unit or a whole. They' are in control of thecorporation AFTER the transaction. They' may or may not control the corporation prior to the transaction. It isnot relevantl We only care about right after the transaction if they own at least 807o or not. If they do, they willbe under the $ 35 l.2: Next, we have to deal with the shareholders' basis of the stocks, and we will follow the general rules oftaxation.That is: Since the transaction is not a taxable event, what would be fair to allocate the basis of the stock?Answer: The basis of the assets that the shareholder transfers. It's because we have not recognized any gains.Therefore, we do not step up basis to fair value-Basis will carryover.i: We also need to be concern with whether or not the corporation needs to recognize gains?Answer: Corporation will not recognize gains given up its own stock for properties. It is a diff'erent code section....
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This note was uploaded on 09/08/2010 for the course BUS 123A at San Jose State.

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Chap. 19 Notes - -Chapter l9We are beginning two chapters...

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