C12-Chp-11-6-Three-Ways-to-Incorporate-a-Ptshp-RR-84-111

C12-Chp-11-6-Three-Ways-to-Incorporate-a-Ptshp-RR-84-111 -...

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2ad25e42ddec66035c86731b2e7e726770e55c7d.doc. Page 1 of 3 “Three Ways to Incorporate a Partnership.” Rev. Rul. 84-111 – Modified by Instructor Transfers; Controlled Corporations; Partnership Interests For Stock. July 23, 1984. FACTS The three situations below involve partnerships X, Y, and Z, respectively. Each partnership used the accrual method of accounting and had assets and liabilities consisting of cash, equipment, and accounts payable. The liabilities of each partner - ship did not exceed the adjusted basis of its assets. Numbers added by Instructor. Partnerships X, Y and Z each have the following balance sheet Accounts Book Value FMV Cash $200 $200 Equipment 800 Acc. Depreciation -600 Book Value and FMV $200 $700 Total Assets $400 $900 Accounts payable $200 $200 Partner A – Capital 100 350 Partner B – Capital 100 350 $400 $900 the partnership interest, before counting debt. The three situations are as follows: Situation 1 – Partnership X Partnership X transferred all of its assets to newly- formed Corporation R in exchange for all the outstanding stock of R and the assumption by R of X's liabilities. X then terminated by distributing all the stock of R to X's partners in proportion to their partnership interests. Situation 2 – Partnership Y Partnership Y distributed all of its assets and liabilities to its partners in proportion to their partnership interests in a transaction that constituted a termination of Y under section 708(b)(1)(A) of the Code. The partners then transferred all the assets received from Y to newly-formed Corporation S in exchange for all the outstanding stock of T and the assumption by S of Y's liabilities that had been assumed by the partners. Situation 3 – Partners of Z The partners of Z transferred their partnership interests in Z to newly- formed Corporation T in exchange for all the outstanding stock of T. This exchange terminated Z and all of its assets and liabilities became assets and liabilities of T. In each situation, the steps taken by X, Y, and Z, and the partners of X, Y, and Z, were parts of a plan to transfer the partnership operations to a corporation organized for valid business reasons in exchange for its stock and were not devices to avoid or evade recognition of gain. LAW AND ANALYSIS Section 351(a) of the Code provides that no gain or loss will 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 (as defined in section 368(c) ) of the corporation. Section 1.351-1(a)(1 ) of the Income Tax Regulations provides that, as used in section 351 of the Code, the phrase "one or more persons" includes individuals, trusts, estates, partnerships, associations, companies, or corporations. To be in control of the transferee corporation, such person or persons must own immediately after the transfer stock possessing at
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This note was uploaded on 03/09/2012 for the course ACCT 6120 taught by Professor Godfrey,h during the Spring '08 term at UNC Charlotte.

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C12-Chp-11-6-Three-Ways-to-Incorporate-a-Ptshp-RR-84-111 -...

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