[shmogma]

if person transfers property to a corporation as a contribution of capital w/ 250 (basis) and 500 (FMV) and does not have more than 80% control, does the corp always recognize his transfer at the 500 FMV rate?

Is the person also allowed to recognize a 250k gain also?

FAR - 80
REG - PENDING
AUD- PENDING
BUS - PENDING

[nib]

@ shmogma

As per my understanding ,

If person transfers property , does not have more than 80% control,So taxable event .
Gain is recognized = 250 k Gain , So new basis of property for person= FMV = 500 k

Corporation's recognized property at FMV= 500

[denivathar]

That depends.

It is not a taxable event if all contributors have 80% control. If multiple people form a corporation and the sum of their control percentages is more than 80%, then it is a nontaxable event and you use the basis of the property (not services) contributed to determine shareholder basis. There is a realized gain in this case, but it is not recognized per the 80% rule so there is no tax.

Compare that to me deciding to contribute property for 10% control of an existing corporation. In that case, it IS a taxable event and I recognize the FMV of the shares received. The same treatment also applies when anyone contributes services regardless of percentage of ownership.

REG - 94 (2/1/2016)
BEC - 88 (2/27/2016)
FAR - 86 (5/7/2016)
AUD - 89 (5/31/2016)

Using Becker Live Classes plus Ninja Audio

[nib]

yes there are exceptions.

one case i know is , If liability > basis on contributed property —- gain recognzd

[shmogma]

@denivathar
if person transfers property to a corporation, as an involvement in the initial formation of the corp(80% and more involvement is then IMPLIED–im assuming), as a contribution of capital w/ 200 (basis) and 500 (FMV) ,

-No Gain appears to involved on behalf of the person
-Persons tax basis is then 200
-Corporation basis is then 200

if someone who is merely investing 100k(tax basis) property w 500k fmv for 30%(i.e becker reg study guide p3-5 example on top), it appears that the Tax basis is still being applied for both person and corporation

is there anywhere within the becker material that shows FMV used as the basis after a contribution?

FAR - 80
REG - PENDING
AUD- PENDING
BUS - PENDING

[denivathar]

Check the Pass Key on P.3 of R3.

It highlights the except to the general rule regarding basis of common stock.

First of all:
If FMV – Adjusted Basis = Gain/(Loss), then FMV = Adjusted Basis + Gain/(Loss).

– For the corp, if it is a taxable event then you use the FMV minus any liabilities to arrive at the basis.
– For the individual, if it is a taxable event then you start with the Adjusted Basis + Gain Recognized – Boot received to arrive at boot received. So generally if you identify a transaction as being a taxable event, you can almost automatically assume the basis is going the be the FMV and just double check that there was no boot involved.

REG - 94 (2/1/2016)
BEC - 88 (2/27/2016)
FAR - 86 (5/7/2016)
AUD - 89 (5/31/2016)

Using Becker Live Classes plus Ninja Audio

[Author]

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