[hopingfor75]

Hey Yall,

I seem to have a lot of problems with basis (not a strong tax background). In particular, I am very confused about the basis the contributor (new shareholder) gets in the new shares when contributing property to a C-Corp.

Becker’s explanation really confuses me.

From what I understand, if the contributor owns 80% or more after the contribution, and receives no boot, then no G/L is recognized and the contributor takes on shares at the NBV of the contribution.

BUT…

there were some problems where the contributor doesn’t receive 80% of more of shares (or doesn’t explicitly state this), and still takes on basis of NBV of the property given for the shares received.

can someone please shed some light on this matter or explain the rule better?

I am taking my (hopefully) last exam next Saturday- I smell the end but I don’t want to give up yet!

Cheers

BEC - 93
FAR - 94
AUD - 95
REG - 99

[michelle119]

Basically if when you have an existing corporation and a person wants to become a shareholder and has property to offer then they must control 80% of the corporation's stock after the transfer… I forget the detail that Becker goes into but I know its code section 351, I just learned all the fine details the other night in corporate tax so I can't distinguish what I knew from Becker's already or the detail they went into which is probably less than I need to know for my class…

FAR 7/2 - 88
BEC 7/30 - 87
AUD 8/27 - 80
REG 11/12 - 96

[hopingfor75]

so a taxpayer cannot contribute property to a C-Corp for stock for <80% ownership?!

hm… confused haha

BEC - 93
FAR - 94
AUD - 95
REG - 99

[michelle119]

well he can… but he will be taxed on the transfer basically it is treated as a sale of goods to the company…. lemme get out my copy of the code and i'll get you more details on the specifics… i just looked at the becker book and realized how much it lacked on that area… in my undergrad corporate tax class we spent about 4 1-hr class periods on this stuff haha

FAR 7/2 - 88
BEC 7/30 - 87
AUD 8/27 - 80
REG 11/12 - 96

[michelle119]

so here's me trying to summarize in the best way possible, found a good example in my textbook for my class, slightly modified to make it clearer:

Jack and Karen own 75 and 25 shares of Texas Corporation stock. Jack transfers property with a $15,000 adj. basis and a $25,000 fmv to the corporation in exchange for an additional 25 shares of Texas stock. The Sec. 351 control requirement is met because, immediately after the exchange, Jack owns 80% (100 shares / 125 shares) of Texas stock. Therefore Jack recognizes no gain.

Alice owns all 100 shares of Local Corporation stock, valued at $100,000. Beth owns property with a $15,000 adj. basis and a $100,000 FMV. Beth contributes the property to Local in exchange for 100 shares of newly issued Local stock. The Sec. 351 control requirement is not met because Beth owns only 50% of Local stock immediately after the exchange. Therefore, Beth recognizes an $85,000 gain ($100,000 – $15,000).

sorry its hard to describe in words without examples and not confusing you anymore…. let me know if that helps!

FAR 7/2 - 88
BEC 7/30 - 87
AUD 8/27 - 80
REG 11/12 - 96

[hopingfor75]

Thanks so much for all your help Michelle!

I think i got the G/L portion down now.

In terms of basis though in ex. 1 Jack's basis in the corp increases by 15k (orig basis) and in ex.2 Beth's Basis is 100k (Original Basis+ Gain Recognized… aka FMV given)?

Thanks so much for your help, basis is just killing me haha

BEC - 93
FAR - 94
AUD - 95
REG - 99

[michelle119]

Yes correct…. your welcome, I bought the gleim book I might start looking at it tonight since Becker is pretty pathetic in these areas I feel like…. I thought that their whole tax section was very vague and weak…. Good luck!! Looks like you know how to study anyways those are awesome scores!

FAR 7/2 - 88
BEC 7/30 - 87
AUD 8/27 - 80
REG 11/12 - 96

[hopingfor75]

Haha my great scores are a result of me freaking out and studying 3x as much as I should… prob lost 5 years off my life studying for these exams.

Anyways- i nominate you for another71 poster of the year!

BEC - 93
FAR - 94
AUD - 95
REG - 99

[michelle119]

haha well its better to overstudy than understudy and have to do it again. 5 years is a lot of time…. I've only studied for about 4 months couldn't consider studying for this for such a long time….

Thanks for the nomination… I'm just really bored at the moment since I'm not working and my b/f is out on business for 2 weeks so I'm trying to study but I need my breaks everyone once and a while…. I just try and help those since so many helped me when I started out…. Its scary how fast I went from a new person here to one that actually knew answers…

FAR 7/2 - 88
BEC 7/30 - 87
AUD 8/27 - 80
REG 11/12 - 96

[hopingfor75]

Haha i meant life expectancy. I started studying in March

BEC - 93
FAR - 94
AUD - 95
REG - 99

[michelle119]

okay makes a bit more sense hahaha clearly my brain is fried and I've done like no work today!!

FAR 7/2 - 88
BEC 7/30 - 87
AUD 8/27 - 80
REG 11/12 - 96

[Author]

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