R3: C Corporations

There is no gain or loss to the corporation issuing stock in exchange for property.

the basis of the property received from the transferor/shareholder is the greater of:

adjusted basis (NBV) of the transferor/shareholder (plus any gain recognized by the transferor/shareholder)

OR

debt assumed by corporation (transferor may recognize gain to prevent a negative basis)

if the NBV of property contributed exceeds the FMV in a tax-free incorporation, the corproation's basis is limited to the FMV of the property. This prevents the transfer or property with built-in losses.

1. 80% Control Immediately after the transaction the s/h involved must own at least 80% of the voting AND non-voting stock.

2. boot not received i.e. cash withdrawn or receipt of debt securities.

**Note: cancellation of debt where liabilties > NBV transferred to corp. is not boot per se but does generate gain.

• NBV
• +FMV of services rendered
• + gain recognized by s/h (debt>adjusted basis)
• -cash received
• -cancellation of debt
• -FMV of non-money boot received

=basis of common stock

• 1. interest income received in advance
• 2. rental income received in advance
• 3. royalty income received in advance

• 1. interest income from municipal or state obligations/bonds
• 2. proceeds from life insurance on the life of an officer ("key person" policy) where the corporation is the beneficiary
• 3. federal income taxes are not deductible on tax return

all of the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a business are deductible.

a business may deduct a specific percentage of their qualified production activities

limit: 50% of W-2 wages paid for the year.

The deduction is 9% of the lesser of:

• 1. Qualified production activities income (QPAI)
• 2. Taxable income (disregarding the QPAI deduction)

• domestic production gross receipts
• -COGS
• -other directly allocalbe expenses or losses
• - proper share of other deductions
• =QPAI

QPAI: qualified production activities income

gross receipts derived in significant part within the US from any disposition of qualified production property that is:

• 1. manufactured
• 2. produced
• 3. grown
• 4. extracted
• 5. constructed
• 6. engineering services
• 7. architectural services