1: Without Section 351, is transferring property into a corporation in exchange for its stock a...

1: Without Section 351, is transferring property into a corporation in exchange for its stock a taxable event?

2: What reason prompted Congress to enact Section 351? Is it to remove this tax barrier to incorporation of an unincorporated business?

3: Will the gain on an exchange of property for stock be deferred (put off) until a future time?

Solutions

Expert Solution

As per section 351 gain or loss shall not be recognized if property is brought to a corporation by one or more persons for stocks of that corporation and all contributors comprise of 80% or more control in the corporation due to above exchange.

1. Yes, without sec 351 transfering property for shares will become a taxable event.

2. Transferring property in exchange for stock does'nt mean transferor is selling its property and due to this transfer their is just a change in the form in which now he is holding its investment. As, government wanted to encourage investors to form corporations and transfer to corporations prompted congress to enact sec 351 and yes it is a removal of tax barrier due to which now contributors can contribute more without worryiong about tax effect of such transfer and form corporations to do businesses.

3. The ultimate effect of sec 351 will be price of the property will become price of the stock, then those stocks will be recorded at carryover basis and whenever in future stocks will be sold the cost of shares which was cost of property will be reduced and tax will be levied. Hence, it can be said that gain on an exchange of property for stock will be deferred to future.

For any clarification, please comment. Kindly Up Vote!

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

A transfers property to corporation X in exchange for all of its stock (value $15,000) and...

A transfers property to corporation X in exchange for all of its stock (value $15,000) and $15,000 in boot. The property transferred by A consists of inventory (basis of $7,000 and fair value of $20,000) and land (basis of $13,000 and fair value of $10,000). All answers should be entered as positive numbers (do not include negative signs or parenthesis). A recognizes a $ 15000 gain on the transaction. A assumes a basis of $ 15000 in the stock received...

when a person contributes cash or property to a corporation and receives stock in exchange this...

when a person contributes cash or property to a corporation and receives stock in exchange this is classified as a section 351 transaction and generally is not taxable as long as the property or cash contributed is equal to the value of the stock. Personal services contributed are considered wages and, if exchanged for stock, become a taxable event. A corporate can also reduce its investment income when purchasing certain types of stock of other companies. This credit is know...

11), 12), 13) & 14): Assume a transfer under IRC Section 351. Andy transfers property with...

11), 12), 13) & 14): Assume a transfer under IRC Section 351. Andy transfers property with a FMV of $70,000 and adjusted basis of $30,000 to a controlled corporation in exchange for stock: $65,000 and cash and other property: $5,000. 11) The amount of boot received by the shareholder is a $5,000 b $15,000 c $20,000 d $30,000 12) The gain recognized by the shareholder is a $5,000 b $15,000 c $20,000 d $30,000 13) The shareholder's basis in the...

Rogers Corporation acquired land in a § 351 exchange in November 2017. The land had a...

Rogers Corporation acquired land in a § 351 exchange in November 2017. The land had a basis of $500,000 and a fair market value of $550,000 on the date of the transfer. Rogers Corporation has two equal shareholders (i.e., each owns 50%), Chris and Mindy, who are father and daughter. Rogers adopts a plan of liquidation in March 2019. At the time the plan was adopted, the land had decreased in value to $400,000. Required: Determine the dollar amount of...

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...

In an exchange qualifying for § 351 tax-free treatment, Jenny receives 100 shares of Jenny Corporation...

In an exchange qualifying for § 351 tax-free treatment, Jenny receives 100 shares of Jenny Corporation stock plus a right to receive another 25 shares. The right is contingent on the valuation of a patent contributed by Jenny. Because the patent license is pending, the patent cannot be valued for several months. Prepare a tax research memorandum to the client file and a letter to Jenny explaining whether the underlying 25 shares are considered 'stock" for purposes of § 351...

1. Services are considered property for purposes of Code Sec. 351. T or F 2. A...

1. Services are considered property for purposes of Code Sec. 351. T or F 2. A loss in control shortly after transfer could cause a transaction to fail to qualify under Code Sec. 351. T or F 3. Shareholders will recognize gain on a capital contribution merely because they are minority shareholders. T or F 4. All liabilities transferred in a Code Sec. 351 exchange are treated as boot for purposes of gain recognition. T or F 5. Liabilities that...

Raphael corporation common stock is currently selling it stock exchange at 194 per share, and its...

Raphael corporation common stock is currently selling it stock exchange at 194 per share, and its current balance sheet shows the following stockholders equity section: Preferred stock - 5% cumulative, $_par value, 1000 shares authorized, issued, and outstanding =75,000 Common stock $_par value, 4,000 authorize, issued, and outstanding =180,000 Retain Earnings =390,000 Total stockholders equity =645,000 If two years preferred dividends are in arears and the board of directors declare cash divided of 22,500, what total amount will be paid...

Raphael corporation common stock is currently selling it stock exchange at 194 per share, and its...

True or False. A stock redemption involves an exchange of stock for cash or property; thus,...

True or False. A stock redemption involves an exchange of stock for cash or property; thus, the transaction always results in sale or exchange treatment for the shareholder.

Subjects