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Corporate Formations and Capital Structure (Day 2)

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Presentation on theme: "Corporate Formations and Capital Structure (Day 2)"— Presentation transcript:

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

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 corporation’s 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 ]

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 transferor’s 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)]

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