chp8.class.notes.12

chp8.class.notes.12 - Tax 3011 Chapter 8 Class Notes 1) The...

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Chapter 8 Class Notes 1) The General Tax Rules That Apply To Property Transactions a) Gain or loss is realized when a person engages in a transaction (an exchange of property rights with another person). b) Gain or loss realized is computed by subtracting the transferor’s tax-adjusted basis in the property exchanged from the amount realized in the exchange. c) Gain or loss realized is recognized (included in the computation of taxable income ) unless exempted or deferred by a provision of the tax laws. d) See Exh 8-1 for Computing Gain or Loss Realized in a Property Transaction. e) See Exh 8-2 for Computing the Amount Realized in a Property Transaction. f) See Exh 8-3 for Computing a Property’s Adjusted Tax Basis in a Property Transaction. g) See EX 8-1. 2) Tax-Deferred Transfers Of Property To A Corporation a) Tax deferral only applies to transfers of property to a corporation. b) Gain deferred decreases the shareholder’s tax basis in the stock to an amount equal to the stock’s fair market value less the gain deferred . c) Loss deferred increases the shareholder’s tax basis in the stock to an amount equal to the stock’s fair market value plus the loss deferred . d) The shareholder’s tax basis in the stock received reflects the tax basis of the property transferred. e) The persons transferring property to a corporation must receive solely stock in the corporation in return. f) The persons transferring property to a corporation must collectively control the corporation after the transaction. g) See EX 8-2 h) Transactions Subject to Tax Deferral i) For shareholders to receive tax deferral in a transfer of property to a corporation, either at formation or later, the transferors must meet the requirements of IRC §351 . ii) Meeting the Section 351 Tax Deferral Requirements (1) Section 351 Applies Only to the Transfer of Property to the Corporation (a) Property includes money, tangible assets, and intangible assets (for example, company name, patents, customer lists, trademarks, and logos). (b) Services are excluded from the definition of property (that is, a person who receives stock in return for services generally has compensation equal to the fair market value of the stock received). (i) IF the s/h contributes property at least 10% of FMV of services, then the s/h’s shares count toward the “control test.” The s/h’s property contribution would be eligible for tax deferral, but the services are taxed. (c) See EX 8-3. (2) The Property Transferred to the Corporation Must Be Exchanged Solely for Stock of the Corporation (a) To receive tax deferral on the transfer, the transferor cannot receive something other than qualifying stock from the corporation in return for the property transferred which is often referred to as boot. (b) The
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chp8.class.notes.12 - Tax 3011 Chapter 8 Class Notes 1) The...

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