Accting 123A 4.1 - Forming a corporations Can transfer...

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Forming a corporations Can transfer property to corporation for stock Count this to determine who has control of corp. shareholders will not recognize gain or loss when property is transferred to corporations its therefore untaxed Shareholder's old basis becomes corporations new basis Corporation will never recognize any gain upon transfer of property Corporate Operations always assume stock received is = to fair value of property contributed 351 stock no gain or loss property for stock 80% stock ownership – add up all the stockholders basis of stock is the amount of property transferred shareholder's old basis becomes corporations new basis Service any type of service rendered is taxable if the service is necessary, corporation can deduct it by giving stock if its treated as an expense, corporations never recognize gain when giving up stock and receive assets and services, but can receive deduction If tax free event Dont increases basis otherwise, increase the basis #3 B receive stock – FMV Services 20,000 ← TAXABLE EVEN IF COVERED BY 351 CUZ OF EQUIP Equipment 5,000 Sh B Basis 3,000 Realized Gain 2,000 Recognized Gain 0 only report the 20,000 as taxable Has to be a minimum amount of property transferred (equipment transferred has to be at least 10% of the stock) 50% A 50% B 100%, control test is met It is now a 351 transaction A Rec stock 25,000 Sh A: Basis 5,000 Corp. Basis A.B 5,000 +gain 0 Land 5000 Realized20,000 Recognized 0 Sh. B Stock Corporate Basis Services 20,000 Land 5,000 Equipment 3,000 Services 20,000 23,000 Equipment 3,000 18-1 Building – FMV 500,000 A.B 100,000 one shareholder gives corporation a building, its tax free, but is it the best planning? FMV 500,000
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Stock – Basis 100,000 Potential gain 400,000, if its sold, its recognized gain (this is shareholder view) Corporation View Building – FMV 500,000 A.B 100,000 ← shareholders old basis carries over to new Potential Gain 400,000 The gain ends up doubled, the gain is recognized if the stock is sold, and recognized if building is sold, therefore leaving it open to double taxation Instead, have shareholder rent the building to the corporation , the rent is taxable to the shareholder however deductible to the building, and when the building is sold its the shareholder reports the gain, and its 1231 gain, potentially subject to favorable tax rates – This only works for properties that have substantially appreciated in value!
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Chapter 19 Forming a corporation Corporation operations Mandatory, no gain or loss is recognized, if property is transferred to corporation, solely for stock. Any property , not service By 1 or more person 351 No gain or loss Property for stock 80% stock ownership-add up all the stockholders Basis of stock is the amount of property transferred Shareholder’s old basis becomes corporations new basis Service Any type of service rendered is taxable
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This note was uploaded on 09/08/2010 for the course BUS 123A at San Jose State University .

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Accting 123A 4.1 - Forming a corporations Can transfer...

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