[Anonymous]

Hey guys –

Obviously the basis of Partnerships, Corps, S-corps etc is a large portion of the study materials and the most likely of the exam. Does anyone have any suggestions for someone that is struggling with those. Each thing makes sense on it’s own, but when I do questions where they are all sprinkled in I can’t seem to keep the rules straight. Anyone else have this issue? Anyone have any advice?

[Spartans92]

One big take away is for partnership liabilities increases the basis of the individual partner. Also, assumption of liabilities by the partnership is reduced based on the %. Whereas, for C Corps the whole liability is reduced and basis is not increased in relation to liabilities of the company.

Distribution to partners in partnership reduces the basis. Think about it as a bank account as Gearty puts it if u r using becker. Money you take out reduce your current account (basis). I dont really recall anything in particular for S-corp basis.. I know its a flow through entity but liabilities dont increase basis for S-corp. Also, note when it is an S-Corp it may be subjected to Built in gain taxes. Hence, when the company sells the asset the gain must first be allocated back to the transferor with the remaining split based on the profit/loss ratio.

Hope this all helps. I think best is to hit the MCQ after getting these info down. If anything else needs to be clarified I am more than happy to help. Perhaps, post some questions in the REG study group many of us will jump in! Good Luck!

BEC- PASS

[S6]

i too am struggling on this! got a 71 last window and hoping to pass come nov. 4
im kind of confused on c-corp contribution from shareholder to corp.
is contributed property from s/h to corp recognized as the FMV at time of distribution or carryover basis?!
my notes have conflicting fact nuggets :/

any help would do my ninjas!!!

[Spartans92]

@ralph, generally it should be the carry over basis for the corporation if it meets Sec.351. That is 80% control immediately and no cash or boot involved. If Im not mistaken the only time you would take FMV is if it is lesser than the basis, this way it prevents any built in loss. I could be wrong.. LOL anyone could confirm?

BEC- PASS

[S6]

@Spartans92
Thanks for the reply ! but in looking at the question below it says FMV? this is what kind of confused me..
maybe i am missing something???

Porter, the sole shareholder of Preston Corp., transferred property to the corporation as a contribution to capital. Two years later, Corley transferred property to the corporation in exchange for a 10% interest in corporate stock. The property transferred was valued as follows:

Porter’s Transfer Corley’s Transfer
Basis $50,000 $250,000
Fair market value 200,000 500,000

What amount represents the corporation's basis in the property received?

A.
$700,000

Correct B.
$550,000

C.
$450,000

D.
$300,000

When property is transferred to a corporation, the basis of any property received is the fair market value (FMV) at the time of the transfer. Porter's transfer two years ago had an FMV of $50,000, but the current FMV does not have an impact on the corporation's basis in the property. The basis in Corley's contribution is the current FMV, and their basis in the property does not affect the corporation's basis. The total basis in property contributed to the corporation is the $50,000 original contribution (FMV) from Porter, plus the $500,000 current contribution (FMV) for Corley, which equals a total of $550,000.

[Spartans92]

Hey ralph, so lets break this down into two parts. 1. Basis for the corp for porter's transfer, that is, 50,000. This is because he met the 80% control, being the “sole shareholder.” Now lets move on to Corley. Notice, it stated she was only a 10% shareholder. Hence, she will need to recognize gain, if any, since she does not meet 80% control, therefore, no section 351 defer gain.
Her FMV is 500k – 250k basis = Realized gain 250k. Since Corley can't defer she must recognized the full 250k.

Corporation usually take the carry over basis. Not sure which software you are using but in becker it states Corporation basis is the greater of: transferor basis + gain recognize or Liabilities assumed. In this case no liabilities. Hence, Corley's basis 250k + her recognized 250k = 500k. This is a coincidence that it is the same value for FMV. I think which is the most confusing part.

So the total is 50k from porter + 500k from Corley = 550k.

BEC- PASS

[monikernc]

this website helped me a lot with basis questions. the illustrations will walk you through examples.

https://tax.cchgroup.com/downloads/files/contemporary-tax-practice/M1-Partnership-Taxation/T1-Partnerships-General-Formation-Issues/A-Legal-Formalities.asp

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[S6]

@spartans92 ohh that makes a lot of sense!! thanks for the clarification. I am using the Ninja MCQ and it just kind of threw me off because in the explanation it specifically states the corp's basis is the FMV of Corley's transfer. i'll def take note of this, thanks again!

@monikernc this is definitely useful ill be sure to add this to my review this week!!

[Author]

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