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Corporate Formations and Capital Structure (Day 2)

2. Chapter. Corporate Formations and Capital Structure (Day 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. Transfers to Corporations in Exchange for Stock. IRC §351 Exchanges. IRC §351 Tests.

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Corporate Formations and Capital Structure (Day 2)

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  1. 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. 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 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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