REG 5C PART 1

Question 1

Electing corp treatment

Answer 1

Some corps may elect S corp status

Question 2

LLC

Answer 2

You can be an LLC that elects to be taxed as partnership or a corporation

Question 3

Personal service- employee owned service

Answer 3

Personal services corp - Provide services ( acc, law,actuary,architecture etc)

• atleast 95% of corp stock is owned by employees, retired employees or any person who inherited stock from shareholder.
• Advantage is ability to use cash method

Question 4

What is tax free incorporation?

Answer 4

• if a shareholder transfers money or property to a corporation in exchange for its stock and than CONTROLS the corporation, the exchange is NOT TAXABLE.
• If you put in services and get stock than you have ordinary income which is valued at the FMV of ths stock)

Question 5

What is control?

Answer 5

• Own atleast 80% of total combined voting power of all classes of stock entitled to vote, AND outstanding shares of each class of nonvoting stock
• If transferred at the same time the transferrors are treated as a group. so if they go 50/50 they own 100 therefore establish control
• Simultaneous tranferors

Question 6

If shareholders receive money or property other than stock than what happens ? is it still tax free

Answer 6

No. than a gain will be recognized only for the amount of money plus the FMV of other property received.

Question 7

Formation of corp

Answer 7

Test 1 - Liability less than basis - No gain
Test 2 - Liability more than basis = gain

SH basis in stock= original basis plus gain -liability (If you have gain , basis is always going to be zero)
Corp basis in property = original basis plus corp now has liability on books