[thorsbew]

I’m in a bind… I’m trying to figure out how much basis a transferor for shares of a corporation receives. I’ve got Wiley’s MC questions telling me that their basis is carried over to the shares of stock, and CPAreview.com is telling me that their FV at time of transfer is their new basis in the stock.

I would understand if someone controlled the corporation that their basis is just transferred, but the MC infers something else! Can someone please help? Exam tomorrow!!!! 🙁

Aud - 65 + 79, BEC - 82, REG - 89, FAR - 86

[Focused]

@thorsbew — here is a pretty general answer: Wiley's MC questions are closer to an accurate answer. Bear in mind that the question you have posed is very generalistic and there are a lot of special rules and exceptions to the question you have outlined. So if you can provide more details or the specific question posed then we can give a more precise answer.

For example, is the transferor offering property or services in exchange for the stock? In cases of transferring property to a corporation in exchange for stock, the transferor will have basis in the stock equal to their basis in the property given. The basis of the stock is increased by the value of any additional cash contributed by the transferor and the basis is decreased by the value of any additional cash received from the corporation.

[Focused]

@thorsbew — here is a pretty general answer: Wiley's MC questions are closer to an accurate answer. Bear in mind that the question you have posed is very generalistic and there are a lot of special rules and exceptions to the question you have outlined. So if you can provide more details or the specific question posed then we can give a more precise answer.

For example, is the transferor offering property or services in exchange for the stock? In cases of transferring property to a corporation in exchange for stock, the transferor will have basis in the stock equal to their basis in the property given. The basis of the stock is increased by the value of any additional cash contributed by the transferor and the basis is decreased by the value of any additional cash received from the corporation.

[thorsbew]

Sorry for the general question Focused. I was trying to refer to the transfer of property.

Joe Schmoe transfers property with adjusted basis of $6,000 and FMV of $12,000 to a corporation in exchange for common stock. Does the transfer of basis for Joe Schmoe only apply if he is a greater than 80% holder of the corporation (in control) after the purchase? Or does it apply to him if he isn't an 80% holder?

I really appreciate the quick answer!

Aud - 65 + 79, BEC - 82, REG - 89, FAR - 86

[thorsbew]

Sorry for the general question Focused. I was trying to refer to the transfer of property.

Joe Schmoe transfers property with adjusted basis of $6,000 and FMV of $12,000 to a corporation in exchange for common stock. Does the transfer of basis for Joe Schmoe only apply if he is a greater than 80% holder of the corporation (in control) after the purchase? Or does it apply to him if he isn't an 80% holder?

I really appreciate the quick answer!

Aud - 65 + 79, BEC - 82, REG - 89, FAR - 86

[Anonymous]

I'm assuming you are referring to a C corporation. And someone please correct me if I'm wrong. Generally, transfers of property to a C corporation are transferred at the FMV. In other words they are treated as if they were sold to the C corporation. This would mean the transferor would recognize a gain (if applicable such as FMV > basis) on the transfer and then corporation would record its basis as the FMV at the date of the transfer. However, gains are not recognized by the transferor if the transferor owns more than 80% of the coporation. Therefore, the basis in the property by the corporation is the same as what it was in the hands of the transferor.

On a side note, I believe no losses are recognized if the transferor owns more than 50%. So this would be the same situation as above except that the FMV would be less than the tax basis at the date of transferor. If the transferor owned less than 50%, they would recognize a loss if the FMV was less than the tax basis on the date of the transfer and the corporation's basis would be the FMV at the date of the transfer. On the other hand if the owner owned more than 50%, no loss would be recorded by the transferor and the basis would transfer from the transferor to the corporation at the same amount.

I hope this makes sense.

[Anonymous]

I'm assuming you are referring to a C corporation. And someone please correct me if I'm wrong. Generally, transfers of property to a C corporation are transferred at the FMV. In other words they are treated as if they were sold to the C corporation. This would mean the transferor would recognize a gain (if applicable such as FMV > basis) on the transfer and then corporation would record its basis as the FMV at the date of the transfer. However, gains are not recognized by the transferor if the transferor owns more than 80% of the coporation. Therefore, the basis in the property by the corporation is the same as what it was in the hands of the transferor.

On a side note, I believe no losses are recognized if the transferor owns more than 50%. So this would be the same situation as above except that the FMV would be less than the tax basis at the date of transferor. If the transferor owned less than 50%, they would recognize a loss if the FMV was less than the tax basis on the date of the transfer and the corporation's basis would be the FMV at the date of the transfer. On the other hand if the owner owned more than 50%, no loss would be recorded by the transferor and the basis would transfer from the transferor to the corporation at the same amount.

I hope this makes sense.

[thorsbew]

Thanks Couldpassagain! Makes perfect sense when you hear someone else explain it. Time to go pass this exam!

Aud - 65 + 79, BEC - 82, REG - 89, FAR - 86

[thorsbew]

Thanks Couldpassagain! Makes perfect sense when you hear someone else explain it. Time to go pass this exam!

Aud - 65 + 79, BEC - 82, REG - 89, FAR - 86

[StudyInRI]

CouldPassAgain: Your response is correct.

A contribution to a C-Corp, generally is transferred at the FMV, such as if you sold the asset to the corporation.

— If FMV > Cost, a gain is recognized UNLESS they have 80% control after the contribution, and there was no boot.

— If Cost > FMV, a loss is not recognized, and the basis of the property to the corporation is FMV. Shareholder can still include the cost in his/her basis, and will recognize the loss when (s)he sells the stock.

I don't believe one needs a majority ownership regarding the losses. Generally, cost becomes your basis, and when the stock is sold, then you have a loss.

REG - 97
BEC - 82
FAR - 86
AUD - 96 ... DONE!

[StudyInRI]

CouldPassAgain: Your response is correct.

A contribution to a C-Corp, generally is transferred at the FMV, such as if you sold the asset to the corporation.

— If FMV > Cost, a gain is recognized UNLESS they have 80% control after the contribution, and there was no boot.

— If Cost > FMV, a loss is not recognized, and the basis of the property to the corporation is FMV. Shareholder can still include the cost in his/her basis, and will recognize the loss when (s)he sells the stock.

I don't believe one needs a majority ownership regarding the losses. Generally, cost becomes your basis, and when the stock is sold, then you have a loss.

REG - 97
BEC - 82
FAR - 86
AUD - 96 ... DONE!

[Anonymous]

StudyinRI – With all due respect, you are incorrect regarding the loss. First, be careful using “Cost” instead of “basis”. These are two different things.

You are correct in respects regarding the basis of the transferred property for the corporation is the FMV if the Basis > FMV. But a loss is recognized normally when transferrring property to a C Corporation even when FMV is less than the basis. It is treated as if it is sold to the corporation at a loss. However, if you own more than 50% of the corporation, a loss is not recognized in this situation because ownership in the property has not technically changed possession. Therefore, no loss can be recognized. It's the same as the gain treatment except the percentages are different.

I am 99% positive on this one. Please reread my original post

[Anonymous]

StudyinRI – With all due respect, you are incorrect regarding the loss. First, be careful using “Cost” instead of “basis”. These are two different things.

You are correct in respects regarding the basis of the transferred property for the corporation is the FMV if the Basis > FMV. But a loss is recognized normally when transferrring property to a C Corporation even when FMV is less than the basis. It is treated as if it is sold to the corporation at a loss. However, if you own more than 50% of the corporation, a loss is not recognized in this situation because ownership in the property has not technically changed possession. Therefore, no loss can be recognized. It's the same as the gain treatment except the percentages are different.

I am 99% positive on this one. Please reread my original post

[Rudy]

If a general partnerhip contributes an income property (it's only asset except for some cash) to a newly formed C corp in exchange for stock, and the owners of the partnership also own the corp, will there be a gains tax to the contributors if the FMV is more than the the book value of the partnership? I believe this can be done under Sec 351 of the code.

Thanks, Rudy

I hope you can help.

[Rudy]

If a general partnerhip contributes an income property (it's only asset except for some cash) to a newly formed C corp in exchange for stock, and the owners of the partnership also own the corp, will there be a gains tax to the contributors if the FMV is more than the the book value of the partnership? I believe this can be done under Sec 351 of the code.

Thanks, Rudy

I hope you can help.

[Anonymous]

I thought cont to a C Corp with at least 80% ownership in stock afterwards (or forming a C Corp with contrbuted assets), you use the basis of the asset to the contributing shareholder, unless the liability exceeds the basis, which will then result in taxable boot to the shareholder (liab assumed over basis) and the C Corp will record the asset at the greater of the basis or the liability assumed. FMV is used when services are contributed or when less than 80% control is acquired after contribution, correct?

[Author]

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