Corporate Formation_M1

Question 1

How does a corporation calculate basis of property received from shareholders?

Answer 1

• Boot received is not considered to the corporation but only to the shareholder.

Question 2

How is the corporations basis calculated for property received by the shareholder?

Answer 2

• If the control group owns 80% or more of the stock, contributions is a nontaxable event.
• Usually the corporations basis in the property received is the shareholders basis.
• If debt is assumed by the corporation basis is the greater of shareholders basis, or debt assumed.
• If cash was received by the corporation it is not added to basis it is a seperate asset contributed.
• If corporation pays cash boot, that will increase the corporations basis because the shareholders receives boot recognizeable taxation.

Question 3

How is the shareholder’s basis calculated when property is contributed to corporation?

Answer 3

Shareholders basis in corporation is:
shareholders basis in property given + cash boot contributed - minus boot received. If basis will exceed -0- basis is -0- and the remainder is recognized gain.

• Boot received is cash or debt reliefe.

Question 4

How is the shareholder’s basis in corp. stock calculated when services are provided in exchange for stock?

Answer 4

• Services provided do not count toward the 80% test for shareholder control.
• Shareholders will have a taxable gain when services are in exchange for stock (taxed as ordinary income) equal to the FMV of the stock received, which equals shareholders basis in the corporation.

Question 5

When is the shareholder taxed on contributions?

Answer 5

Excess boot received over basis contributed.
Taxable Gain= Basis contributed - debt relief or cash given (boot received)