Which of the following is taxed as an entity? (a) Corp, (b) LLC, (c) partnership, (d) S-Corp, (e) sole proprietorship
(a) on earnings
(b) typically the owners
The rest are taxed at the owner’s ordinary income rates
How are the owners taxed for each entity? (a) Corp, (b) LLC, (c) partnership, (d) S-Corp, (e) sole proprietorship
(a) the dividend received by the owner (shareholder) is taxed
(b) typically on earnings
(c) on earnings
(d) on earnings
(e) on earnings
Which of the following offers limited liability for its owners? (a) Corp, (b) LLC, (c) partnership, (d) S-Corp, (e) sole proprietorship
(a)
(b)
(c) only for limited partners
(d)
(e) NO limited liability
Which of the following results in corporate tax on gain/loss to a corporation: (a) issuance of common stock, (b) reacquisition of stock (t-stock), (c) resale of t-stock?
None of these results in a tax consequence
An individual transfers property in exchange for stock during issuance of common stock. What is the basis to the corporation of the property transferred?
The greater of
The net book value (adjusted basis) plus any gain recognized by the transferor OR
Debt assumed by the corporation (transferor may recognize gain to prevent a negative basis).
The shareholder contributes property in exchange for stock when forming a C-Corp. What is the formula to determine the shareholder's basis in the stock?
book value of the property contributed
- loans transferred to corporation
- boot received
+ gain recognized
= basis of the stock
The share holder contributes property in exchange for stock when forming a C-Corp. What is the formula to determine the corporation's basis in the property?
Transferor's basis
+ gain recognized
= basis of the property
NOTE THAT A LIABILITY ASSUMED DOES NOT AFFECT THE BASIS
What happens if the aggregate adjusted basis of property contributed to a corp exceeds the aggregate FMV of the property?
The corp’s basis in the property is limited to the aggregate FMV (to prevent built-in losses)
What 2 conditions must be met so that the transferor of property in exchange for common stock has no gain or loss?
Immediately after transfer, the transferor’s (the control group) own >/= 80% of the voting and >/= 80% of the non-voting stock AND
No receipt of boot!
True / False: A shareholder who contributes services in exchange for common stock may be included in the control group.
False
The stock is considered wages earned.
The value of the stock is taxable as ordinary income.
The stockholder is not counted in the control group
What are the different taxing categories for a limited liability corp?
If 1 owner: Schedule C as a “disregarded entity”
If 2+ owners: A partnership
A new shareholder donates a building with FMV of $1,000,000, basis of $100,000 and a mortgage of $400,000 in exchange for stock. What is the basis to the (a) stockholder, (b) corporation?
The difference between the $400,000 mortgage and the $100,000 basis ($300,000) is considered excess cancellation of debt and is taxable as a gain to the new shareholder. The stock basis is ($300,000) NBV + $300,000 gain recognized = $0.
The basis to the corporation is (a) $100,000 + gain recognized by shareholder of $300,000 = $400,000 (which is also the amount of the assumed liability).
True / False: A mortgage assumed by a corporation in an exchange of property for stock is considered boot to the shareholder.
False
It adjusts the basis, but is not considered boot.
A new shareholder transfers property in exchange for common stock. Assume he is part of the control group and they own >80% of the stock. What is the basis of the new shareholders stock if the property transferred is (a) cash, (b) an asset, (c) services
(a) amount contributed (cash = stock basis)
(b) NBV – debt assumed by corporation [may result in gain recognized by the shareholder if the debt exceeds the NBV]
(c) stock in exchange for services is considered wages and the stock’s FMV is taxed as ordinary income
A new shareholder donates a building with FMV of $1,000,000, basis of $100,000 and a mortgage of $60,000 in exchange for stock. What is the (a) gain realized, (b) gain recognized, (c) basis of the stock, (d) basis to the corp?
