Section 351 Problem – Please give the tax affects to both the shareholder and corporation, including...

Section 351 Problem – Please give the tax affects to both the shareholder and corporation, including any gains/losses and the basis of both the shareholders in their stock and the corporation in the assets.

Total of 5 shareholders - All assets and liabilities were given during the incorporation:

Shareholder 1 gave $100,000 in cash for 20% ownership/shares.

Shareholder 2 gave a book binding equipment FMV $110,000, basis 30,000 and received $10,000 in cash plus 20% ownership/shares.

Shareholder 3 gave a building FMV $350,000, basis $100,000, and also the company took the building with a mortgage note of $250,000, for 20% ownership/shares.

Shareholder 4 gave paper inventory FMV $60,000, basis $55,000, plus a delivery truck FMV 40,000, basis $50,000 and received 20% ownership/shares

Shareholder 5 gave a printing press FMV $50,000, basis $30,000, plus copyrights FMV $60,000, basis $30,000 for 20% ownership/shares plus $10,000 in cash.

Expert Solution

Total Ownership in the company	$ 500,000.00


Particulars	Percentage of Shareholding	Received Ownership	Cash	Total	Surrender value to the corporate	If sold in the market	Basis of Asset	Gain/ Loss( Shareholder)	Gain/ Loss( Corporation)
SH 1	20%	$ 100,000.00	$ -	$ 100,000.00	$ 100,000.00	$ -	$ -	Nil	Nil
SH 2	20%	$ 100,000.00	$ 10,000.00	$ 110,000.00	$ 110,000.00	$ 110,000.00	$ 30,000.00	$ 80,000.00	Nil
SH 3	20%	$ 100,000.00		$ 100,000.00	$ 350,000.00	$ 350,000.00	$ 100,000.00	$ -	$ 250,000.00
SH 4	20%	$ 100,000.00		$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 105,000.00	$ (5,000.00)
SH 5	20%	$ 100,000.00	$ 10,000.00	$ 110,000.00	$ 110,000.00	$ 110,000.00	$ 60,000.00	$ 50,000.00	$ -

jeff jeffy answered 2 years ago

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