Module 38: Corporate Taxation

CORPORATE INCOME TAX

Section 351 Transfer to Controlled Corporation

No gain or loss is recognized if property is transferred to a corporation solely in exchange for stock if the transferors of property (in the aggregate) control the corporation.

Property includes cash and everything but services
Control is the ownership of at least 80% of the corporation's stock

Services for Stock

Taxable transaction

Taxable compensation to shareholder = FMV of stock
Shareholder basis for stock = FMV
Corporation has expense or asset = FMV of stock

Property for Stock

Generally a nontaxable transaction

Whenever shareholders providing cash and property have total ownership ≥ 80%
Shareholder basis for stock = basis for asset given (exchanged basis) + gain recognized − boot received
Corporation basis for asset = same as shareholder's basis + gain recognized to shareholder

Taxable transaction

When shareholders providing cash and property have ownership < 80%
Shareholder recognizes gain or loss = FMV − Basis
Shareholder basis for stock = FMV
Corporation basis for asset = FMV

Computing Corporate Income Tax

Gross income

−	Deductions
=	Taxable income
×	Tax rate
=	Preliminary tax liability
+	Personal holding company tax
+	Accumulated earnings tax
+	Alternative minimum tax
=	Total tax liability
−	Credits
=	Net tax liability
−	Estimated payments
=	Tax due (or refund)