Chapter 18 - Corporations

Chapter 18 - Corporations - LaToya Suel February 18, 2011...

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LaToya Suel February 18, 2011 Chapter 18 Corporations: Organization and Capital Structure Discussion Questions and Research Problem 1. § 351 provides gain or loss is not recognized upon the transfer of property to a corporation when certain conditions are met. § 1031 provides that a gain or loss is not recognized because a substantive change in the taxpayer’s investment has not occurred. Both § 351 and § 1031 provide for no recognition of gain or loss for certain transfers which otherwise would be taxable. In addition, this approach can be justified under the wherewithal to pay concept. 2. § 351 transfer includes money or other property ("boot"); gain is recognized to the extent of the boot's fair market value. However, § 351 about how to allocate consideration received in an exchange, including boot, among the assets transfer. No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control. 3. Services are not considered to be property under § 351. Ray must report it as income the fair market value of the Orange stock received. Ray’s basis in the stock will be its fair market value. 4. The transfer is normally treated as the receipt of boot by the transferor. But such boot is taxed only to the extent of any realized gain that results. 5. Regulations state that the term “stock” does not include stock rights and stock warrants. Otherwise the term “stock” generally needs no clarification. The receipt of debt in exchanged for the transfer of appreciated property to a controlled corporation causes recognition of gain. 6. The control requirement of § 351, the property transferors must be in control of the corporation immediately after the exchange. Control means that the person or persons transferring the property must have at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock. It can also apply to a single person or to several taxpayers if they are all parties to an integrated transaction. a.
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This note was uploaded on 02/25/2011 for the course ACCT 2000 taught by Professor Holmes during the Spring '08 term at LSU.

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Chapter 18 - Corporations - LaToya Suel February 18, 2011...

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