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Flashcards in Reg 18 Deck (15):

When do you recognize a gain in a section 351 exchange.

The corporation gives you money back for what you transferred to the corp.
Now figure out the gain on what you sold (a build with a basis of 40k and an FMV of 50K
Which is less? That's the taxable gain.


Exception to statute of frauds about goods and over $500.

If goods are for a special purpose need not be in writing.


You absolutely gotta love this: it's 80% of both classes (voting and all classes) to use 351. You make a transfer when you own 75% and that brings you to 80% can you still use 351.

Yes because it's 80% ownership immediately after the exchange, I guess even when you do it later. 368(c) is the 80% rule. SubChapter C is the corporate stuff, subchapteer S is the S Corps, K are the partnerships, F is exempt orgs, J is Estates and Trusts, Ordinary Gain and Loss O (Wash Sales) Capital Gain and Loss P


OK more confusion: The more than 80% applies to whomever is transferring property. If you have three investors two give property or cash and one gives services how much do the other two have to have if they want their exchange to be non-taxable.

The other two must have over 80%, if the one who contributes services has over 20% they don't qualify. Even cash counts as toward the 80%. Just not services.


On exchanges of property under 351 remember to compare realized to recognized and it's the lesser that's the gain.

Don't rush!!!! MVU of what got, BVU of what gave up. Equals realized gain
Recognize is different compare to boot


Also that 80% transfer rule under 351 it has to occur concurrently, if someone joins 2 years later for 10% then they don't qualify for 351 treatment.

351 People with over 80% must contribute cash or property
Must do it at the same time


The corporation has a $50K deficit in accumulated E and P, it earns $10K and distributes $40K, what do I keep forgetting about what's taxable as a dividend.

If it earns something it's a dividend, even if the e and p deficit exceeds it. Always a dividend first, then the rest is a return of capital.


I read this question completely wrong "Weber distributed $20,000 cash and property with an adjusted basis and FMV of $60,000 to it's shareholders. What amount is dividend? What did I read wrong.

Also company had e and p of $70K accumulated E and P.

What was the dividend versus distribution?

I thought it was $60,000 total, failed to see $20,000 in cash a-n-d property with an adjusted basis and FMV (the same) of $60K. That's the trick of the question though because why would you even mention that the adjusted basis and FMV are the same.

So they gave out $80K and they only had $70K to distribute so difference of 10K is distribution.


What are returns of capital in Corps? Ordinary income or capital gains.

returns of capital are not taxable - not ordinary income, just getting your money back
returns over your capital = taxable as capital gains


Due date of 1099-Div with the IRS (not taxpayer)

February 28th following. year


Corporate Charitable Contributions Deduction

No more than 10% charitable for corpos
50% for individuals


Net capital losses for corporations, only deductible __________ and is there a carryback or carryfoward?

Can only offset against capital gains. If not carryback 3 years forward 5 years.
Now I'm still unsure about the "basket" thing. Net capital loss appears to mean in this question the net after capital gains. Not sure.


What difference does it make?
Short Term: First have to offset ST GAins - ST Losses = Gain
Long Term: First have to offset LT Gains - LT Losses = LT Gain
IOW you can't apply all your long term losses to short term gains to offset those.
But if you have extra long term loss you can apply it to the short term gain and vice versa.
Then it's just the $3,000 limit.

So next year same thing and why would it matter if the loss was short or long term.

I guess it's the same deal, if it's a long term loss carry over you have to use it to offset long term gains first.


from the horses mouth: IRS definition of

Net Capital Gain: Amount Net Long Term Capital Gain is more than Net Short Term Capital Loss

Net Long Term Capital Gain: Long term capital gains reduced by long term capital losses including any unused carryover long term capital loss from prior years.

So...always start with
Net Short Term Capital Gain (Loss) - Only the short term (including carryover of ST Loss)
Net Long Term Capital Gain (Loss) - Only the long term (including carryover of LT Loss)

Then if there's loss left over you can net them out against each other for the Net Capital gain


Tricky: Try to ask yourself it it's a C corp even if it's. owned by 1 person. This makes no sense of course, but if it has E and P it's a C corp and there's no pass through so it's either dividends or a distribution. And the dividends are taxable. Don't confuse it with the AAA of an S corp.

Questions says "formed by it's current shareholders" there may have been 300 of them for all you know.