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Example (Gain recognized by boot)

Bill transfers property with a tax basis of $600 and


a fair market value of $800 to a corporation in
exchange for stock with a fair market value of $800
and $50 cash in a transaction that qualifies for
deferral under section 351. The corporation
assumed a liability of $50 on the property
transferred. What is Bill's tax basis in the stock
received in the exchange?

19-1

Example (Gain recognized by boot)


Bill transfers property with a tax basis of $820 and
a fair market value of $800 to a corporation in
exchange for stock with a fair market value of $800
and $50 cash in a transaction that qualifies for
deferral under section 351. The corporation
assumed a liability of $50 on the property
transferred. What is Bill's tax basis in the stock
received in the exchange?

19-2

Example (Loss)
Bill transfers property with a tax basis of $600 and
a fair market value of $400 to a corporation in
exchange for stock with a fair market value of $400
and $50 cash in a transaction that qualifies for
deferral under section 351. The corporation
assumed a liability of $50 on the property
transferred. What is Bill's tax basis in the stock
received in the exchange?

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19-3

Tax-Deferred Transfers of Property to a


Corporation
For shareholders: Assumption of a liability by a
corporation is generally not treated as boot
If any of the liabilities assumed by the corporation
are contributed with the purpose of avoiding the
federal income tax or if there is no corporate
business purpose for the assumption, all of the
liabilities assumed are treated as boot to the
shareholder (tax avoidance transaction)

19-4

Tax Consequences to corporations in a


property transfer

For a corporation in a section 351 transaction:

Do not recognize gains or losses realized on the


transaction
Tax basis for the corporation in the property received

When aggregate tax basis of properties <= aggregate FMV of


properties, carryover shareholders tax basis
When aggregate tax basis of properties > aggregate FMV of
properties

If shareholders do not use the FMV of properties for basis, the


corporation needs to reduce aggregate basis to FMV (built-in loss)
If shareholders use the FMV of properties for basis, the corporation
can carry over shareholders tax basis

19-5

How to calculate tax basis for a


corporation in a tax-deferred transfers
--when shareholders recognize gain

6
19-6

Example (Gain recognized by boot)


Bill transfers property with a tax basis of $600 and
a fair market value of $800 to a corporation in
exchange for stock with a fair market value of $800
and $50 cash in a transaction that qualifies for
deferral under section 351. The corporation
assumed a liability of $50 on the property
transferred. What is the corporations tax basis in
the property?

19-7

Example (Gain recognized by boot)


Bill transfers property with a tax basis of $600 and
a fair market value of $800 to a corporation in
exchange for stock with a fair market value of $800
and $500 cash in a transaction that qualifies for
deferral under section 351. The corporation
assumed a liability of $50 on the property
transferred. What is the corporations tax basis in
the property?

19-8

Example (Loss)
Bill transfers property with a tax basis of $600 and
a fair market value of $400 to a corporation in
exchange for stock with a fair market value of $400
and $50 cash in a transaction that qualifies for
deferral under section 351. The corporation
assumed a liability of $50 on the property
transferred. What is the corporations tax basis in
the property?

19-9