Corporation Tax experts

[Veretta9]

If you are forming a corporation, how would you treat a transfer of appreciated securities ($100 FMV and Basis of $60) in exchange for stock from the corporation in a section 351 transaction?

 

[needtogetarmy]

Assuming stock is property under the code, a person transferring appreciated property in exchange for the corporations stock (provided they meet the 80% control rule) does not recognize a gain on the transaction. The "gain" is deferred and will be recognized when the stock is sold.

Your basis in the stock will be $60. Thus, if you sell the stock in the future you will pay taxes on any gain over $60. Furthermore, the corporation will also have $60 basis in the stock it obtained.

The nature of the taxes will depend on the holding period, i.e LTCG or STCG.

I do not deal with this extensively and my corporate tax references are in the garage, in a box, collecting dust, so this may not be 100% accurate.

 

[Veretta9]

Everything you said is on point, in terms of the nonrecognition and deferral of gain.

I guess my question is whether or not the securities will be treated as property. I am assuming they are as well...

 

[mrplunkey]

You sure that doesn't create a taxable event? If the new corporation values their stock at $100 and you purchase it with stock at a MV of $100, wouldn't that qualify as an arms-length transaction thus producing a taxable event?

 

[Arabian]

Assuming stock is property under the code, a person transferring appreciated property in exchange for the corporations stock (provided they meet the 80% control rule) does not recognize a gain on the transaction. The "gain" is deferred and will be recognized when the stock is sold.

Your basis in the stock will be $60. Thus, if you sell the stock in the future you will pay taxes on any gain over $60. Furthermore, the corporation will also have $60 basis in the stock it obtained.

The nature of the taxes will depend on the holding period, i.e LTCG or STCG.

I do not deal with this extensively and my corporate tax references are in the garage, in a box, collecting dust, so this may not be 100% accurate.

It varies from state to state however AV is correct however the stock is worthless unless it goes public in that case most states null and void such obligagtions within 6 months of such transaction,. meaning if you issue a corporate stock certificate and go public within the time allotment all is well if not then you have wasted your time due to the fact the stock will be deemed worthless. I hope this helps., go the office of state controllers for your state and download the pdf file /// its boring readin however the anwers you seek will be here

 

[Arabian]

You sure that doesn't create a taxable event? If the new corporation values their stock at $100 and you purchase it with stock at a MV of $100, wouldn't that qualify as an arms-length transaction thus producing a taxable event?

The stock has to be backed by a viable revenue source .... it just cant be create and deemed a value of $100.00 based on heresay

 

[Veretta9]

Thanks fellas....

 

[Veretta9]

Another question here for the experts, if you own 100 percent of the shares in one corporation(lets call it A) and 45 percent in the other (call it B), and you sell all of your shares from A to B, does this qualify as a redemption? This sale falls outside of section 304 because this individual does not have 50 percent or more ownership in B. Would it be a distribution under section 301 and taxable as a dividend depending on B's E&P?

I don't think it is a redemption because the individual is not redeeming B stock back to B, and if it is not, then what would this transaction be?

 

[needtogetarmy]

Everything you said is on point, in terms of the nonrecognition and deferral of gain.

I guess my question is whether or not the securities will be treated as property. I am assuming they are as well...

§ 317 includes securities under the definition of property.

 

[needtogetarmy]

Another question here for the experts, if you own 100 percent of the shares in one corporation(lets call it A) and 45 percent in the other (call it B), and you sell all of your shares from A to B, does this qualify as a redemption? This sale falls outside of section 304 because this individual does not have 50 percent or more ownership in B. Would it be a distribution under section 301 and taxable as a dividend depending on B's E&P?

I don't think it is a redemption because the individual is not redeeming B stock back to B, and if it is not, then what would this transaction be?

A redemption defined under § 317 is when the corporation acquires its own stock from its shareholder. I your hypo Corporation B is not acquiring Corporations B's shares, it is purchasing the shares of Corporation A.

I am not 100% sure on this but I believe it is a distribution under 301.