[jcw1503]

From Study Material:

Shareholder Basis in a Coporation Calculation

Adjusted Basis of Property Transfered

+Gain Recognized (only if less than 80% ownership)

-(Boot Received) (Includes Assumption of Liability)

= Shareholder Basis

***If liabilities exceed basis on contributed property to a corporation, a gain is recognized.

The above information is from the study material and I was wondering somethings?

1) Is the only gain recognized when the liabilities exceed basis on contributed prpoerty to a corporation?

2) So you include the liability in the gain calculation and in the basis received?

I am stuck on this and I cannot make myself moved on until I figure this out.

Please Help…..

FAR - Attempt 1-(70)...Attempt 2 (Passed Baby)-Praise the Lord-Couldn't have done it without him.
AUD- Attempt 1-Passed!!!!!!!!! )-Praise the Lord-Couldn't have done it without him.
REG-Attempt 1-(73)...Attempt 2 (Passed Baby)-Praise the Lord-Couldn't have done it without him.
BEC-Attempt 1-(71)...Attempt 2 (Passed Baby)-Praise the Lord-Couldn't have done it without him.

****What is one Golden Rule for Passing the Exam? 1) Read the question properly. and 2) Leave yourself enough time to answer all of the....
****Success seems to be connected with action. Successful people keep moving. They makes mistakes, but they don't quit.
****Success is the sum of small efforts, repeated day in and day out.

[jokami]

1. Yes, the shareholder only recognizes a gain when the liability exceeds the TOTAL amount put in the company.

2. The company recognized the asset being donated by either the adjusted basis or the liability, whichever is greater of the two.

Ok…

First you have to be aware if this is a corporation or a partnership.

For the corporation:

You add everything you “donate” to the entity, this includes: cash, asset, building (at their basis), etc..

If any of your assets are subject to a mortgage; you have to subtract that amount to the total you “donated.”

If the liability is greater than the “donation”; then the shareholder recognizes that amount as a gain in his tax return, and your basis in the company starts in zero.

For the partnership:

Same as corp; you add everything you “donate” to the entity, this includes: cash, asset, building (at their basis), etc..

If any of your assets are subject to a mortgage; you have to subtract the percentage of risk eliminated (taken by the other partners) from your “donation”

If the percentage of risk eliminated is greater than the “donation”; then the partner recognizes that amount as a gain in his tax return, and the your basis in the partnership starts in zero.

B - 62, 70, 72, 79!!!
A - 68, 81
R - 70, 82
F - 84

"The limit to your abilities is where you place them" - Fortune Cookies

[jcw1503]

Let me give a situation to go along with this questions….

***Assume less than 80% ownership.

Bob gave land with a FMV of $70,000 and an adjusted basis of $40,000 w/ a liability of $55,000

He received Cash of $5,000.

What is Bob Shareholder Basis and what is the Corp. basis in the property?

**********************************

My calculation is:

Adjusted Basis- $40,000

Gains-

(Lower of FMV-Basis or Boot Received- (70,000-40,000 or 5,000+55,000) $30,000

(Liability in excess of Adjusted Basis-55,000-40,000) $15,000

Boot Received-

($5,000+$55,000) ($60,000)

Shareholder Basis-

$25,000

Corp. Basis-

Adjusted Basis- $40,000

Gain recognized by Shareholder $45,000

Corp. Basis $85,000

Is this correct or way off….I couldn't figure out how to do it with multple variables…Please Help. I feel like I am way off. None of my practice questions cover multiple criteria….Thanks

FAR - Attempt 1-(70)...Attempt 2 (Passed Baby)-Praise the Lord-Couldn't have done it without him.
AUD- Attempt 1-Passed!!!!!!!!! )-Praise the Lord-Couldn't have done it without him.
REG-Attempt 1-(73)...Attempt 2 (Passed Baby)-Praise the Lord-Couldn't have done it without him.
BEC-Attempt 1-(71)...Attempt 2 (Passed Baby)-Praise the Lord-Couldn't have done it without him.

****What is one Golden Rule for Passing the Exam? 1) Read the question properly. and 2) Leave yourself enough time to answer all of the....
****Success seems to be connected with action. Successful people keep moving. They makes mistakes, but they don't quit.
****Success is the sum of small efforts, repeated day in and day out.

[jokami]

ok…. For what is he receiving the 5K for? Services provided to the company or to pay part of the mortgage the land he donated?

B - 62, 70, 72, 79!!!
A - 68, 81
R - 70, 82
F - 84

"The limit to your abilities is where you place them" - Fortune Cookies

[jokami]

It really doesn't matter in this question since we are only looking for the basis of the shareholder but for the company it may make a difference.

Shareholder:

40,000 – 55,000 – 5,000 = -20,000

$20,000 is your boot. You add it back to your basis to make it zero (0).

Company

55,000 > 40,000

Adjusted basis for the land is $55,000

The 5k goes as a credit to cash.

B - 62, 70, 72, 79!!!
A - 68, 81
R - 70, 82
F - 84

"The limit to your abilities is where you place them" - Fortune Cookies

[Keely]

Jokami, you are a saint to explain all that in detail. This was my most hated concept to study in REG, and all I can say is I am SO glad I don't have to study it ever again. Good luck, jcw, wish I could help you out! The only thing that helped me is to read that section about 500 times and work the questions. Are you using Becker? I felt there wasn't enough explanation on this topic in Becker and you're really left to have the MCQs help you out.

BEC: (4/2012) 88
AUD: (5/2012) 91
REG: (8/2012) 82
FAR: (1/2013) 78 🙂

VA CPA #42010

[jcw1503]

@jokami

Thanks so much..that helps out a lot…I appreciate it so much.

@keely

Yeah..this is the part I struggle with the most…I was so going after the first time that I wouldn't have take it again…but two points made me have to retake…I hate regulation…

FAR - Attempt 1-(70)...Attempt 2 (Passed Baby)-Praise the Lord-Couldn't have done it without him.
AUD- Attempt 1-Passed!!!!!!!!! )-Praise the Lord-Couldn't have done it without him.
REG-Attempt 1-(73)...Attempt 2 (Passed Baby)-Praise the Lord-Couldn't have done it without him.
BEC-Attempt 1-(71)...Attempt 2 (Passed Baby)-Praise the Lord-Couldn't have done it without him.

****What is one Golden Rule for Passing the Exam? 1) Read the question properly. and 2) Leave yourself enough time to answer all of the....
****Success seems to be connected with action. Successful people keep moving. They makes mistakes, but they don't quit.
****Success is the sum of small efforts, repeated day in and day out.

[Anonymous]

Actually, the corporation's basis in the transferred asset under Section 351 is the greater of the liability assumed or the adjusted basis of property transferred PLUS the gain recognized by the shareholder, which in this case would be $40,000 + $20,000 = $60,000 basis to the corporation.

Incidentally, the liability assumed will NEVER be greater than the adjusted basis plus gain recognized by shareholder, so you can just ignore that part of the rule and always calculate the corporation's basis as the adjusted basis of the asset transferred plus gain recognized by shareholder.

Finally, the OP said, “Assume less than 80% ownership.” In this case, Section 351 would NOT apply, so the gain would have to be recognized in full by the transferor. Thus, Bob would recognize a gain of $30,000, and his basis in the corporation would be $10,000. The corporation would then take the FMV of the asset ($70,000) as its basis in the asset.

[Author]

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