In: Finance
Explain the 80% rule as it pertains to the formation of a corporation.
An individual contributes property with a fair market value in excess of basis to a corporation in exchange for stock. What is the basis of the stock in the hands of the shareholder, and what is the basis of the property contributed in the hands of the corporation?
A corporation may make a distribution to its shareholders. Depending on the circumstances, in the hands of the shareholder, the distribution can be classified as a dividend, a tax-free distribution, or a capital gain. Explain the circumstances in which each classification can occur.
What is Schedule M-1, and what is its purpose?
The basis of stock in the hands of the shareholder is the basis of the property contributed along with the gain recognized and deducting the boot which includes the relief of liability.