Ch14_Part II - Chapter 14 Taxation of Corporations Basic...

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Chapter 14 Taxation of Corporations —Basic Concepts Part II ©2011 CCH. All Rights Reserved. 4025 W. Peterson Ave. Chicago, IL 60646-6085 1 800 248 3248 www.CCHGroup.com
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2 of 26 Chapter 14 Exhibits Chapter 14, Exhibit Contents A 1. Corporate Capital Structure 2. Shareholder Contributions 3. Shareholder Contributions Example 4. Nonshareholder Contributions 5. Debt in the Capital Structure 6. Section 1244 Stock 7. Loss Limitation 8. Additional Limitations 9. Section 1244 Stock – Example 1 10. Corporate Requirements (Code Sec. 1244) 11. Section 1202 Stock 12. Section 1202 Gain Limitation 13. Corporate Requirements (Code Sec. 1202) 14. Section 1202 Stock – Example
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3 of 26 Corporate Capital Structure Corporation’s capital structure consists of stock and debt it issues Capital is raised from shareholders by issuing stock Capital is raised from nonshareholders by issuing debt Shareholders and/or nonshareholders may contribute assets to corporation not in return for stock or debt These contributions to capital are motivated for different reasons Chapter 14, Exhibit 1
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4 of 26 Shareholder Contributions A corporation does not recognize a gain or loss on receipt of money or other property in exchange for its stock Does not recognize income when it receives money or other property as a contribution to capital Corporation’s basis in property depends upon the nature of transaction If Code Sec. 351 applies to the transaction, corporation’s basis equals transferor’s AB increased by any gain recognized by said transferor In a taxable exchange, corporation’s basis is FMV of the stock Corporation’s basis of property received from a shareholder as a contribution to capital equals shareholder’s AB increased by any gain recognized by shareholder If a shareholder to whom corporation is indebted gratuitously forgives the debt, transaction amounts to a contribution to capital of corporation to extent of the principal of debt Chapter 14, Exhibit 2a
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5 of 26 Shareholder Contributions Shareholder’s basis in stock under Code Sec. 351: AB of property transferred Increased by any recognized gain Decreased by FMV of boot received Shareholder’s basis in stock received in a taxable exchange equals FMV of property transferred Shareholder’s basis in stock owned prior to contribution is increased by amount of cash and AB of property Chapter 14, Exhibit 2b
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26 Shareholder Contributions Example Kaitlin contributed land worth $60,000 (AB is $25,000) that she held as an investment for five years and services worth $14,000 to AMX Company in return for some of its stock. The transaction did not qualify under Code Sec. 351. What are the results of the transaction?
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Ch14_Part II - Chapter 14 Taxation of Corporations Basic...

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