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Flashcards in BASIS Deck (14):

Corporations Basis in the Property Received.
Must transfer over _____ % and it must be _______________ for it to be the _____________.

Issue: Is it the MVU when transferred or the Basis to the INvestor

If less than _________% then the CVU to the corporation is the (FMV of the property contributed or MV of stock)

Must transfer over 80% and it must be concurrent for corp to carry at the holders basis.

IOW if someone later gets 10% of the stock for contributing property then it's just like they sold it and the basis is the FMV of the property contributed.


Questions about basis in a corporation non-liquidating distribution
With liabilities assumed
Key here is distributions

General Rule for Non-Liquidating Distributions: Basis is _______ if no liability assumed

If comes with a liability and it is less than the FMV, then the Basis is the _____ (FMV or Liab)
If comes with a liability and it is more than the FMV, then the basis is the _____ (FMV or Liab)

General Rule for Non-Liquidating: Basis is Property is FMV at date of distribution.

Unless the liability assumed is more than the FMV in which case the basis is the liability.


The question said a non-liquidating distribution for a C corp. But the amount of the property transferred was more than the holders basis (it's sole shareholder) in the stock.
So I guess non-liquidating means it doesn't go to 0. If it goes to 0 (or has to) that's a different story because you have to account for that extra that gets it to 0.k

Corporate distributions are different from partnership distributions.

Partnership distributions - reduction is the NBV of the property.
Corporate distributions - reduction is the FMV of the property (for nonliquidating).

I guess this makes sense because the partnership is a pass through, corp is not, therefore corp recognizes gain/loss before transfer and shareholder picks up the ball.


Corporate non-liquidating of property, what do you have to look for to determine whether it's a dividend or a return of capital?

The E and P account including this years earnings and whatever gain or loss is recognized on the distributed property.


Issues in Corporate distribution of property.

Is it a dividend or a return of capital or both?
What amount of dividend income is recognized?
Does the corp recognize gain or loss?
What about if liabilities are trans. corp recog gain or loss on those?
What is the property's basis to the receiver of the property dividend.

Look at E and P, anything over is a return of capital, if SH investment isn't sufficient to cover it it's a gain.

Corp. recognizes gain or loss on property distributed, gain on the liabilities transferred (tricky see below) all this impacts E and P.

Receiver carries property at FMV or the liability assumed if it's higher than FMV.

Corp transfers liabilities in excess of the FMV, guess what, then the FMV is the liability and less the basis equals the gain recognized.


Question was about distribution, 2 during year, Gleim mentioned allocating E and P to April and then E and P to September, but they just divided up the year end profit between the two even though the corp was on a January year.

1. Had one question asking for overall split between dividend/return of capital for year.
2. Had another question asking for the amount of the first distribution that should be dividend or return of capital.

Because of asking about the exception instead of the rule, I got this wrong. Had I not known about the exception I would have answered it correctly, or known probably too strong a term, worried about it.


Corporate distributions of property.

Rule is FMV - basis = gain recognized by corporation.
What if liability of corp exceeds FMV and the Shareholder is assuming those well then you use the liability as the FMV of the property (and the shareholder uses this as basis).

I still don't know what happens as far as gain or loss to the corporation if the liability is less?

Liability assumed exceeds FMV - use Liability as the FMV

Liability is less than FMV (ignore it I guess) - does it effect the gain or loss recognized?
I guess you couldn't do this because the collateral would be gone, I don't know.


C Corp transfers property and a liability where the liability is more than the FMV of the property -
How does the corp. calculate gain or loss?
What is the receivers basis in the property?

It uses the liability as the FMV proceeds - it's adjusted basis.
The receiver uses the liability as the basis of the property rec'd.


Question 441: Corporation Distributes 9000 and land to SH. Info given.
E and P on 12/31/15 b4 dividend and distribution: 9000
Land FMV: 40,000
Land Basis: 5,000
Corporate Tax Rate: 35%

None of the other questions has ever mentioned tax rate. So I calculated the gain of 35K and added it to the 9K to get 44K.

But ... it wanted you to notice that the gain is taxable and so the net figure is all that is available to be distributed (again though, in other questions no mention of tax rate or impact, I guess you only consider if mentioned).

Correct answer had to take after tax profit of $22,750 as E and P. and add it to the 9K.


When distributing property, you have to consider that the distribution does what to E and P in addition to the fact that it increases/decreases due to capital gain or loss.

Still not sure about the loss part, recognize the loss, charge it against E and P, then do the distribution at the FMV?

So on the Corporate side you've got for distributions of property:
Gain or Loss on Taxes
Gain or Loss on E and P - increases or decreases
How the distribution decreases E and P
What does giving up the liability due to E and P? IDK
What if it's less than the FMV? IDK

covered the last two on another card


Corp distributed property: OK just did a question where the Liability exceeded the FMV and the rule was to use the Liability as the FMV when calculating the gain and use it as the basis to the shareholder who received the property.

Now this question the liability assumed is higher than the basis but lower than the FMV of the property being given up. Basis to corp. is 10K, FMV 30K, Liabil 16K. Asks about impact on E and P

In my mind:
FMV - Basis: Recognize 20K gain on property
Gave up a liability: That's another 16K you gained
Total Increase 36K
Now you decrease by the FMV of what you distributed 30K
Net effect is 6K


When you distribute property to a shareholder, how much do decrease E and P by.
FMV of the property given up? Adjusted basis? What about if it has a liability attached to it that the corp is transferring.

Impact on E and P of property distributions.

Other than if the liability exceeds the FMV, in which case you use the liability as the FMV
1. Calculate the gain on the FMV - AB
2. Add the liability you're giving up
3. Now decrease the E and P by the FMV of the property u transferred

Liability exceeds FMV of property
1. Now where does the basis fit in, you use the liability as the FMV to calculate gain
2. "for gain recognition purposes, FMV is at least equal to any liability to which the property is subject"


Partnership Basis in Property
General Rule: No liability transferred
What if the partner transfers the liability with it and it's more than his adjusted basis.
Does the FMV have any part in all this.

Basis is transferred partners basis in the property and it's the basis of his partnership interest.

Transfer a liability and you decrease partnership basis then add back what your proportionate share is of the liability. So your asset is 15K, liability of 32K, 50% share. 15-32+16 = whoops it's a negative so you have to recognize 1,000 gain.

The gain gets added onto the basis FMV has nothing to do with anything (and I think this is the difference between partnerships and C Corps.


Transfers of property from corps to SH - FMV is the go to
Transfers from owners to partnerships - FMV doesn't factor in.

Basis to partnership after 351 transfer is partners original basis plus any gain recognized. You recognize gain because you transferred the property plus some liability - you got more than you gave up. That gain gets added onto the partnerships basis.