What is the corporations holding period in the assets contributed by a

What is the corporations holding period in the assets

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What is the corporation’s holding period in the assets contributed by a shareholder?What is the corporation’s holding period in the assets contributed by a shareholder?Same as the holding period of the shareholder.Does the corporation recognize gain or loss on the exchange of its stock for property under Code Sec. 351?No, never.What about property other than stock transferred by the corporation?If a corporation transfers other propertyto shareholder, then YES, it generally recognizes gain (but not loss) based on [FMV - AB].
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IRC 351 – Example 1FACTS:A transfers land worth $50,000 (AB of $10,000), and B transfers land worth $15,000 (AB of $5,000) to X Corp. in exchange for all of the stock of X.QUESTION 1: Has the 80% control requirement been met under Code Sec. 351?Chapter 16, Exhibit 29aSOLUTION 1: Yes, A & B own 100% of the stock after the exchange. Since control immediately after the exchange 80%, the exchange qualifies as a Code Sec. 351 exchange. Neither A nor B recognize any gain.
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IRC 351 – Example 2FACTS:A transfers land worth $50,000 (AB of $10,000) to X Corp. in exchange for 50% of the stock of X. B transfers services worth $50,000 to X Corp. in exchange for the other 50% of the stock of X. QUESTION 1: Has the 80% control requirement been met under Code Sec. 351?Chapter 16, Exhibit 29aSOLUTION 1: No, because the transfer of services does not count in the 80% control computation. Therefore, the shared “qualified” control after the exchange is only 50% (A’s 50%) and the exchange does not qualify as a 351 exchange. This means that A will have to recognize the $40,000 gain on the transfer of land to the corporation.
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IRC 351 – Example 3FACTS:A transfers land worth $50,000 (AB of $10,000) to X Corp. in exchange for 50% of the stock of X. B transfers services worth $15,000 to X Corp. in exchange for 15% of the stock of X. C transfers a building worth $35,000 (AB of $10,000) to X corp. in exchange for 35% of the stock of X. QUESTION 1: Has the 80% control requirement been met under Code Sec. 351?Chapter 16, Exhibit 29aSOLUTION 1: Yes. Although B’s transfer does not count, A and C combined control more than 80% of the stock after the transfer. Therefore, the exchange qualifies as a 351 exchange and neither A nor C must recognize gain on the transfer. Remember that B must always pay income tax on the transfer because he exchanges services for stock. Therefore, his share of the transfer is viewed as compensation for services rendered.
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IRC 351 – Example 430$ 0$ 30,000ServicesAnu# shares issuedAB to S/HFMVAssetStockholderFACTS:Anu, Ellsworth, and Tebessum decided to pool their efforts and form a corporation. They made the following contributions to the corporation:Chapter 16, Exhibit 33aThe FMV of the stock is $1,000 per share. Ellsworth’s land is subject to a $10,000 mortgage which the corporation assumed.100$110,000 TOTALS1011,00010,000EquipmentTebessum6020,00070,000LandEllsworth30$ 0$ 30,000ServicesAnu
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QUESTION 1: Does this transfer of assets qualify for Code Sec. 351 treatment?SOLUTION 1: No, Anu is not a transferor of property. Only Ellsworth and Tebessum can be included in the control computation. Since their combined control is only 70% [(60 + 10) ÷100], the 80% IRC 351 – Example 4Since their combined control is only 70% [(60 + 10) ÷100], the 80% control requirement has not been met.
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