Corporate Formations and Capital Structure (Day 2)

1
Corporate Formations and Capital Structure(Day
2)
2
Chapter
2
Next Class

• Read pages 2-27 through 2-36 in Prentice Hall
  textbook
• Problems C2-44, C2-45, C2-47, C2-49, C2-51,
  C2-52

3
Transfers to Corporations in Exchange for Stock

• IRC 351 Exchanges

4
IRC 351 Tests

• Three tests for IRC 351 treatment
• Property transferred to corporation
• Solely in exchange for corporations stock
• Control requirement
• Transferee corporation must not be an Investment
  company IRC 351(e)
• Problem C2-32

5
Shareholders/Transferors

• General rule Realized gains (losses) are not
  recognized IRC 351(a)
• Receipt of boot IRC 351(b)
• Does not disqualify the transaction
• Gain (but not loss) is recognized to the extent
  of boot received
• Separate properties approach Rev. Rul. 68-55

6
Shareholders/Transferors

• Basis of any other property received is its fair
  market value IRC 358(a)(2)
• Basis of stock received IRC 358(a)(1)
  Basis of property given up - FMV of other
  property received - Cash received Gain
  recognized Basis of stock received

7
Corporation

• Gain (loss) not recognized IRC 1032(a)
• Boot paid is treated like any other corporate
  distribution with respect to stock IRC 351(f)
• Generally, no gain (loss) recognized IRC
  311(a)
• Gain recognized on distributions of appreciated
  property IRC 311(b)

8
Corporation

• Basis of property received equals the
  transferors basis in the property plus any gain
  transferor recognized IRC 362(a)
• Depreciation recapture potential carries over
  IRC 1245(b)(3) and IRC 1250(d)(3)
• Depreciation must be calculated based on the same
  methods and recovery periods used by the
  transferor IRC 168(i)(7)