Chapter 14 Questions - Income Tax II Name_Christian Yimgnia...

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Income Tax II Name __Christian Yimgnia________ Chapter 14 Questions Explain and/or discuss the following based on reading the chapter and viewing the power points. Be thorough with your answers. You may take all the space you need. 1. Describe the provisions of Code Sec 351. Why is this provision important to taxpayers when forming a corporation? The rule under Code Sec 351 is mandatory and states that no gain or loss is recognized upon the transfer of property to a corporation solely in exchange for its stock if the taxpayer transferring the property is in control of the corporation immediately after the exchange. This rule is to encourage more corporate formation and subsequent transfers to corporations. The major requirements under that rule include; the transfer must consist of property, the transfer must be solely in exchange for stock, and the transferors must be in control immediately after the exchange. 2. Explain how a shareholder’s basis in stock received in a 351 transfer is determined. The tax code 351 for transfers of stock requires that the transferor receive the corporation’s stock. The exchange qualifies under code Sec 351 when transferor receives stock and securities, assuming all other conditions are met. The receipts are treated as boot, and anything else constitutes boot and may cause gain recognition.
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