[Anonymous]

Hey guys,

Basic question, From what I understand the shareholder basis from a TAX FREE transaction in a C Corp when contributing a property is decreased by the boot received (including the liability transferred) and that a gain is recognized only when that liability exceeds the basis of the property. But I am a little lost when the liability is bigger than the FMV of the property (rare scenario I know). For example:

Adj Basis – FMV – Mortgage

100,000 – 120,000 – 210,000

In this case the shareholder basis will be 100,000??

Basis of Property:

100,000

+ 110,000?? ( gain from liability excess over basis)

– 110,000

= 100,000?? or bc the transaction is tax free the gain is only suppose to be the lesser of the gain or the boot?? resulting in a 10,000 basis?? ((100,000 + 20,000 (gain from adj – FMV) – 110,000 (boot from liability) = 10,000

And his taxable income 110,000??

100,000

– 210,000

= 110,000 liability excess over basis??

I know is a little to much (I tried to simplify it) but really appreciate any help.

[Anonymous]

Or in this case bc of the gain from the liability the shareholder basis is $0???

[makiu]

@cortes123

please see the following multiple choice. It covers the recognition of gain when the liability is in excess of the FMV for the property been transferred….. In a Sec. 351 transaction, Mr. Biller transferred assets with an adjusted basis of $76,000 and a fair market value of $80,000 to Bay View Corporation in exchange for its capital stock with a fair market value of $72,000. Bay View Corporation also assumed a liability from Mr. Biller of $81,000 [not a trade account payable under IRC Sec. 357(c)(3)]. What is Mr. Biller’s recognized gain?

A. $8,000

B. $9,000

C. $5,000

Answer (C) is correct.

Sec. 351(a) provides for nonrecognition of gain or loss if a person transfers property to a corporation solely in exchange for stock in the corporation and if, immediately after the exchange, such person is in control (owns at least 80% of the stock). Also, Sec. 357(c) provides that, if the liabilities transferred or assumed ($81,000) are greater than the basis of all the property transferred ($76,000), the excess is treated as a gain from the sale or exchange of property. Thus, Mr. Biller’s recognized gain equals $5,000 ($81,000 liability assumed – $76,000 basis in property transferred).

D. $1,000

Good luck studying, and hope this help … btw…how is your study coming along?

[makiu]

@cortes123,

so basically, gain is recognized for the difference between the adjusted basis for the property transfer and the liability assumed by the corporation…

[Anonymous]

Thanks Makiu. Well I am putting the time and effort but still don't feel comfortable. With AUD I felt ready two weeks before the exam but REG is a whole diferent animal. I work full time and I am married and stil I am managing to sneak at least 4 hours on weekdays and like 10 total hours on weekends but the thing is for me that I feel that REG involves a lot of memorization and I am not good at it. As of know after 2,100 MCQ I am averaging 75 and trending 83, I will keep on pounding MCQ and SIMS. I copy paste the MCQ that I have seen I am struggling with on google DOCS and for quick reference I will be doing some spreadsheets for all the basis (bc I hate them).

And you, how is your study coming along?? Btw in that MCQ that you used, what do you think will be the basis of the shareholder??

[makiu]

@cortes123. Well, if we apply the formula, I think the basis would be equal to zero,

AB in contributed property >>>>>$76,000

Plus Gain Recognized>>>>>>>>$ 5,000

>>>>>>>>>>sub-total>>>>>>>>$81,000

Less-Boot Received liability>>>>$(81,000)

=basis in stock of >>>>>>>>>>> $0.00

My goal for this testing window is to gain as much knowledge as possible in 19 days while waiting for my FAR score.( 8/25). Sounds very challenging, but I'm going to give it a try. I've been studying like crazy for REG since 8/10 and forward. I'm putting approximately 45 hours a week just evening hours and weekends. Let's see what happen… I will suggest you to learn the main code section for the different topics been tested for the REG exam. For instance, partnership, C–Corp, S- Corp , Estates, Trust, and Estates to mention a few, and then you go from there. The IRC has a general rule, but there are a ton of exceptions, and instead of memorizing all this crazy rules, try to memorize for instance the code section that applies to and the rest is downhill. we used to said in PR, where I grew up that ” bajando hasta las calabazas ruedan”. “down to the pumpkins roll”. LOL, I still have more ground to cover; there are some specific topics that I'm not even going to study due to time constraints that accordingly to the CSO are not heavily tested. In short, studying for REG while I'm waiting for the passing score of FAR, so help me GOD. We will pass REG just trust your instinct. …take care…

[Anonymous]

Thanks, will take that into account!! And where did you grew up?? I am from Juana Diaz, apperently there is a storm coming on Tuesday, we desperately need the rain and I desperately need the time that I could get off from work bc of the storm! LOL. Also 25 is coming soon good luck!

[makiu]

@cortes123

what a small world…” La Villa de San Blas”,Coamo…I'm currently in the DMV area ( DC-Maryland-Virginia) area. I saw in the news that a hurricane is on the way… hope that brings plenty water ….and give you plenty days of studying as well …. stay in touch and feel free to shot any question… I will be studying all weekend long including Monday…..planning to work over 1500 multiple choice to nail down the business law concepts…..

[makiu]

@cortes123

the main concept to keep in mind for code section 351 is the CONTROL OWNERSHIP TEST…sometimes we tend to go directly and solve the problem and te first question that we have to make ourselves is IF we have control ownership, if not, gain is recognized. Also, watch out when services are provided in exchange for stocks and the percentage involve. These 2 key elements are the most important to know before answering the question.

Step#1. Do we have control of the corporation, immediately after the transferred. …if so.. then go to next step

Step#2. No services in return for stock… if not then you are fine…. and continue with the rest…that is basically how I approach this topic.

[Anonymous]

Tengo amistades alli, me cuentan que hay mucho trabajo. Will sure do, I hope we nail this thing!!

[makiu]

@cortes123

Will do, hey. como me puedo comunicar aparte contigo.. no se como hacerlo.

[Anonymous]

Tengo un FB con mi esposa pero por principios no lo comparto con personas que conozco por internet :/ Pero para cosas del examen siempre puedes escribir por aqui yo entro todos los dias a cada rato!!

[makiu]

@cortes123

! Got you…lets stay in touch.. and keep on working hard… we will pass this test…

[Anonymous]

Sure thing! lets do this…

[Author]

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