[MCLKT]

If a service provider (like a Dr.) incorporates his/her practice, and becomes 100% owner, do the services provided count as part of the contribution? Let’s say they also contribute cash and equipment.

Would this qualify for section 351?

Wiley CTax-0001

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[SeattleAccountant]

Hehe, got this one.

Per Reg 1.351-1(a)(1)(ii) this type of feat can be done and be still nontaxable/qualified for 351 treatment provided that shareholder (Dr.) contributes enough property and/or cash to offset value of services. The magic number is at least 10% of services' value must be contributed in property/cash. Basically, IRS wants that shareholder contribute significant tangible stuff and not just of token value. This is of course coupled with the control requirement.

Disclaimer: this info did not come from my current review but rather from my last year's grad course; thus, i'm thinking that AICPA most likely will not go into this type of detail 🙂

Becker Class of Jan - Aug 2013: FARB DONE!!!!
CPA license pending 🙂

[MCLKT]

Thanks Seattle!

An MCQ had this info. And section 351 applied, but the Dr. also provided cash and equipment when incorporating. 🙂

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[Author]

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