[Anonymous]

I am so confused about something.

On the VERY first page of R3 in Becker, it claims that a shareholder contributing property for common stock has no gain or loss when the TWO following conditions are met:

1) 80% control

2) Boot Not Involved

Then right after that, Gearty gives you a review question to work, where a guy contributes property but only has 60% ownership yet doesn’t recognize a gain or loss. What’s up with that? The 80% rule is clearly stated yet he disregards it in the example.

[Anonymous]

You have to look at the total of cash/property contributions. If all is 80% then no gain. If total services is 20% or more then all is gain. And property uses FMV instead of basis then. Services is always considered as taxable income to shareholder (considered as bartering)

[Anonymous]

In the example, the guy only contributes property in exchange for 60% of the common stock yet there is no gain.

Here is a picture of the example: https://tinypic.com/r/2lc0kg8/6

[Anonymous]

Just looked at. Yeah if you see the other 40% is land (property) then the total is above 80%, so no one has a gain.

[Anonymous]

Oh ok. So in other words, the total of property contributed has to be over 80% no matter how many different shareholders?

[Anonymous]

Yeah.

Together they own 100% (assuming it's both voting and nonvoting), so it qualifies for the 80% test.

(Additionally, there needs to be no boot involved, and there isn't since the liability relief is only $5000, and it doesn't exceed the NBV of the property.)

[Author]

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