[Rocky]

Hi folks, Please clarify the confusion where it says, that shareholder will recognize gain if boot is received or excess liability of asset assumed by the corp.

Becker also says corp also recognised gain at the same time when if adusted basis transferred by the shareholders(plus any gain recognized) ? Is it the same gain that shareholder recognizing by receiving cash from corp and giving excess liability to corp which corp will add to its basis ? Or corp will have different gain recording criteria ?

Anyone can give me an example where two things are happening at the same timeas in how both individuals recognize gain.

[HDCPA]

First, I think you have this part, but there is no gain or loss by the taxpayer if they are contributing property, receive 80% or more control of the corporation, and are not receiving cash in return, or cancellation of debt in excess of their NBV from the transaction. This is a non-taxable event, and both the basis to the shareholder, and the basis to the corporation = the NBV of the property.

For your question, you have to first understand what the excess liability means. For example, you give up a building with a NBV of 80,000 – but you owe 100,000. This 20,000 is an excess liability. You are basically relieved of $100,000 debt, but only giving up $80,000 in property. The difference of $20,000 is your excess liability, and since you are “getting out of” $20,000 in liability, the IRS says hold up that is a gain and you must pay taxes on it.

Further, the taxpayers basis in the corporation is (the NBV of the asset given up) MINUS (any liabilities given up). When there is an excess liability like the above, the basis stops at $0 (it cant go negative). So for my example above, the taxpayers basis in his new corporation is $0 with a recognized gain of $20,000 (the excess liability).

The corporation does not record a gain or a loss on the transaction. The corporations basis is the GREATER OF the debt assumed or the NBV of the asset. In this case, the corporations basis in the land is the $100,000.

FWIW – this is covered on Pages R4-4 through R4-7 in Becker. I am currently studying REG! Fun Stuff!

[Rocky]

Hi, I understand corp don’t recognise gain in the firat issuance of stock, treausry stock reslae and reacquaition of tresury stock.

Can you explain wording in brackets Adjusted basis of the transferor/shareholder(plus any gain recognized by the transferor/shareholder) which gain is this ?

And same here debt assumed (transferor May recognize gain to prevent a negative basis) which gain is this ?

[Rocky]

In april x and y formed z corp x contributed 50k cash and y contributed 40k land with fmv of 70k, y also received 20k cash by z corp. x and y both receives 50% of each corp stocks. What is the basis of land to z corp ?

60k
40k
70k
50k

And the answer is 60k.

Can you explain this in the context of adjusted basis plus gain recognized by shareholder.

And also what would be the bais of shareholder Y as he got boot in the cais and his basis ?

[Author]

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