Difference in Basis for Partnerships, S-Corps and C-Corps?

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  • #1617806
    jc1103
    Participant

    Hi!

    I am studying for REG and keep getting the basis for Partnerships, S-Corps and C-Corps mixed up. What are some subtle, and easy to miss differences in calculating the basis of each of these?

    Thank you

    AUD - 86
    BEC - 95
    FAR - 87
    REG - 77
    The LORD is my strength and my shield; my heart trusts in him, and he helps me. 

    All four done. Praise the Lord!!

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  • #1617827
    maj1028
    Participant

    C Corp & S Corp shareholder basis in stocks received on incorporation:
    Adjusted basis of contributed property
    +Gain recognized by shareholder
    -Liability assumed by corporation
    -boot received

    C Corp & S Corp basis in property received on incorporation:
    Adjusted basis of contributed property
    +Gain recognized by shareholder

    Note: corporation does not recognize any gain or loss in issuance of stock but recognize gain on distribution of property. Keep in mind, use Liability as FMV if liability is greater than adjustef basis of property.

    Changes in basis C Corp:
    Adjust basis for any stock splits and any subsequent contribution

    Basis of distributed property to a shareholder: FMV

    Changes in basis in S corp:
    Adjust basis for any subsequent contribution, share in income including tax exempt, distribution from AAA/AOA, share in losses including non-deductible expenses

    Partner's basis in transferred property:
    Adjusted basis – liabilities assumed by partnership + Partner's share in liabilities assumed by partnership

    Partner's basis in services contributed to the partnership: FMV

    Partnership's basis in property received: Adjsuted basis in the hands of the partner

    Changes in Partner's basis:
    Adjust basis for any increases or decreases in liabilities, subsequent contribution, share in income including tax exempt, distribution, share in losses including non-deductible expenses

    Note basis cannot be below zero

    I believe these are the fundamentals that you would need to be able to answer most of the questions. Please always note if the question is asking about basis in the hands of the shareholder or partner or in the hands of the entity.

    Anyone, please feel free to add anything else you remember.

    Hope this helps

    AUD - 94
    BEC - 86
    FAR - 81
    REG - 87
    @maj1028

    "In the infinity of life where I am, all is perfect, whole, and complete.  All is well in my world." - Louise L. Hay

    #1617836
    jc1103
    Participant

    @maj1028

    This is great. Thank you so much!

    AUD - 86
    BEC - 95
    FAR - 87
    REG - 77
    The LORD is my strength and my shield; my heart trusts in him, and he helps me. 

    All four done. Praise the Lord!!

    #1617847
    cpApex Predator
    Participant

    Very good. I like the addition that I recommended. Also, an important distinction needs to me made for the difference between partner and S Corp basis. In partnership, you add the partner's share of liabilities to the basis, but you do not add the share of liabilities to basis in S Corp.

    Peripheral thoughts to keep in mind: recognized gain is lesser of realized gain or boot received. This rule applies for multiple situations- like kind exchanges, basis rules, etc.

    Also good to add to this is the basis of like-kind property: FMV of property received minus postponed gain plus postponed loss equals basis of like-kind property.

    For involuntary conversions, basis of new property is cost reduced by any deferred gain.

    If you have a hard time remembering if you need to reduce for deferred gain, you can logically think it through. When you defer gain, you are going to pay tax on the amount in the future. You pay tax based on the adjusted basis. Therefore, a lower basis will create that situation when it is sold. Vice versa for losses. You will recognize more loss if you have a higher basis, so add it.

    AUD - NINJA in Training
    BEC - NINJA in Training
    FAR - 86
    REG - 89
    Why do you lag?  What is it to you that idle tongues will wag?  Follow my steps through all such whisper of you.  Be as a tower of stone, unswayed by whatever the winds may do.  For when a man lets his attention stray, it saps his mind's force with continual change.  -Dante
    #1617860
    cpApex Predator
    Participant

    Thought of one more thing: The control test. For C corporations, if those contributing property own 80 percent after their contributions, then the adjusted basis is used. However, if they do not control 80 percent, then they recognize gain and the basis become fair market value rather than the adjusted basis. Phew! So many hooks and exceptions to remember! Take the test tomorrow. Getting in the last review….

    AUD - NINJA in Training
    BEC - NINJA in Training
    FAR - 86
    REG - 89
    Why do you lag?  What is it to you that idle tongues will wag?  Follow my steps through all such whisper of you.  Be as a tower of stone, unswayed by whatever the winds may do.  For when a man lets his attention stray, it saps his mind's force with continual change.  -Dante
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