[murano]

I saw many people say that use ab instead of fmv in subsequent property contributions to a c or s corp.
But since section 351 is usually not satified in a subsequent contribution, why not use fmv?

[Anonymous]

Hi @murano, so adjusted basis, or carryover basis is used when Sec. 351 is satisfied. Ie. if immediately after transfer, those transferring assets control 80% or more of the corporation (C or S corp), shareholders take an initial basis in stock of what they had in property contributed. Likewise, the corporation will use the shareholder's adjusted basis in their tax books.

If Sec. 351 is not met as you discussed, then contribution is treated as a deemed sale from shareholder to corporation. For appreciated property, this means the shareholder recognizes gain to the extent of FMV. The shareholder and the corporation then, in turn, both take an adjusted basis = FMV.

As a general rule, it seems tax-free (or rather, tax-deferred) contributions are more heavily tested, but its useful to know both rules.

[murano]

Hi Chandler，
Thanks, and congrats on the pass!:D

[Anonymous]

Any time 🙂 and thank you!

[Author]

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