StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Tax Corporation Consequences - Assignment Example

Cite this document
Summary
The paper "Tax Corporation Consequences" tells if the total basis for corporation adjustment exceeds all the total properties then the total FMV must be deducted by this increase. This rule eliminates the double loss for the property with a loss that is built-in and transferred to a corporation…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92.6% of users find it useful

Extract of sample "Tax Corporation Consequences"

Tax Corporation Consequences To: Kelly Jackson tax manager From: Quincy Jefferson Date: 16 January 2019 Subject: Tax consequence The underlying 25 shares are hence considered for the stock purposes of section 351. This is due to the fact that section 351 applies to all the transfer of properties to that of an existing corporation. For all the exchange made to be free of tax, there must be some necessary control for the overall corporation after the exchange is made. Greta is therefore not in control since he only owns 75 shares out of the 125 shares or simply the 60% of the north stock. Therefore the requirements of section 351 are not met at all cost. For one to qualify under the 351 section, Greta can, therefore, ensure the transfer of enough property so that it will be in a position to acquire 200 shares total amount of the 250 shares of the outstanding shares. In this particular situation, Greta would own an exact percentage of 80% of the north stock. Due to this, there is a requirement for a less expensive alternative which is for Greta to transfer all the property which is equal to $10,000 that is considered as a transferor for the main purposes of the control test. A corporation usually recognizes no loss or gain when it ensures the issuance of the stock in exchange for the property or all the services under the 1032 section. This usually applies even when the transaction does not get a qualification under the 351 section. Some sets of circumstances may also require that there be a recognition of the gains when there is a transfer of liabilities. There are some assumptions made on regard to the liabilities All the liabilities are usually assumed by a corporation that is controlled and are also considered to be boot if the main purpose f the portion transfer of some of the liabilities is avoiding tax or in cases where there is no bona fide and the major purpose exists for the transfer. Also, if the total amount of all the transferred liabilities to a corporation which is controlled becomes more then the total amount that is adjusted of all the transferable properties. Then in case that happens, then the excess is treated as a profit or gain that is taxable to the transferor with no regard as to whether he had realized the gain or loss. Then the transferor recognizes gain but the liabilities which are excess fails to be considered to be a boot. This is according to section 357(c) which states avoiding a negative stock basis. If the total basis for corporation adjustment exceeds all the total properties then the total FMV must be deducted by this increase or excess. This rule usually eliminates the double loss for the property with a loss which is built in and transferred to a corporation. A corporation can also avoid the property loss reduction on the basis if there is elect shareholders and also the corporation at large (Rupert, 2018). All the affected shareholders on the stock basis will end up being reduced with the held property by the overall amount by which the corporation would have required so as to reduce on the basis. Also, the holding period of the corporation includes the whole period which the property was finally held by the transferor. If the limitation rule of the loss applies, then the holding period will begin on the very first day after the exchange is made. Since there is no recognition of any gain, then the basis of the transferor carries all over to the corporation. The basis of the corporation is that of $10,000 and the equipment has $25,000. There are some other assumptions of the liabilities which are first considered by determining the realized gains. For the main purpose of calculating the basis of stock of the transferor, then the corporation usually assumes that all the liabilities are treated as the received money and due to this they reduce the stock basis (Rappaport, 2018). For the major purpose of determining the recognition of gain, then the assumption of the corporation of the liabilities in section 351 is therefore not considered to be equivalent to the money receipt under the 357 section. The assumption of the corporation does not usually result in the gain recognition. Due to this, there are some impacts which follow on the liabilities. This is that the assumption of the mortgage of $10,000 of the corporation is taken into consideration by determination of the amount that is realized and the gain is also realized. Tax avoidance All the liabilities which are controlled and assumed by a corporation which is controlled are usually to be considered to be on the basis of money that is received by the transferor. This results in tax avoidance or in cases where the transferred liability has no bona fide on the purpose of a business. All the liabilities that are incurred immediately before any transfer is made usually falls under the anti-avoidance and the measures can either be some of the obligations such as the mortgage. All the trained liabilities are usually treated like a boot. The excess liability is treated in cases where if the total amount of the transferred liabilities exceeds the total property basis adjusted, then the excess liabilities will be taxed as a transferor gain. The recognized gain character usually depends upon the transferred property nature. This is due to the basis of the transferor as stock received. Section 357 usually prevents a negative stock basis. Section 357 states that the liabilities are not booted. It also states that the gain is recognized even where the transferor recognizes no such gains. The cash basis Section 357 usually applies to the taxpayers' cash basis. The term liability does not usually include any single amount that would result in an increase to the deduction when it is paid off (Asali, 2018). For instance the accounts payable for a taxpayer on a cash basis. If section 351 of the exchange is termed to be completely nontaxable, then no depreciation is usually recaptured. This is in situations where the transfer is partially taxable this is due to the fact that the transferor usually recognizes some of the recapture depreciation. The obligations of debt There are deductible business bad debts since they are treated as ordinary losses with no limitation when they become partially worthless. The non-business bad debts are also deductible as those of short terms loss of capital when they are worthless which is found under section 166. Also, a loss which is sustained by a shareholder who guarantees a loan that is from a third party is usually treated as a noon- business bad debt. References Asali, L. J., Howlett, A. L., Zhang, K. H., & Zimmerman, D. W. (2018). IRS Expands Scope of Private Letter Ruling Program for Spin-offs. Journal of Taxation of Investments, 35(2). Rappaport, M. E. (2018). Analyzing Fill-Up Allocations of Boot: The Implications Might Surprise You. Journal of Taxation of Investments, 35(3). Rupert, T.J., & Anderson, K., (2019). Pearson's federal taxation 2019 corporations, partnerships, estates & trusts (32th ed.). New York, NY: Pearson. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Tax Corporation Consequences Assignment Example | Topics and Well Written Essays - 1000 words, n.d.)
Tax Corporation Consequences Assignment Example | Topics and Well Written Essays - 1000 words. https://studentshare.org/finance-accounting/1893958-tax-corporation-consequences
(Tax Corporation Consequences Assignment Example | Topics and Well Written Essays - 1000 Words)
Tax Corporation Consequences Assignment Example | Topics and Well Written Essays - 1000 Words. https://studentshare.org/finance-accounting/1893958-tax-corporation-consequences.
“Tax Corporation Consequences Assignment Example | Topics and Well Written Essays - 1000 Words”. https://studentshare.org/finance-accounting/1893958-tax-corporation-consequences.
  • Cited: 0 times

CHECK THESE SAMPLES OF Tax Corporation Consequences

Small-Business Idea Paper

consequences of tax and legal implications Different legal and tax provisions apply to the different forms of business organization.... Small business idea Introduction Different forms of business organizations exist for small size enterprises and different features, advantages and disadvantages, and legal, accounting, tax and other implications, characterize each form.... I therefore, in this paper, discuss the scope of a small business by exploring advantages and disadvantages of a sole proprietorship, types of financial statements for each form of business organization, tax, and legal implications for each form of business organization, proposed products for my small business, my preferred form of business organization, and the rationale for my choice....
3 Pages (750 words) Essay

Group Project in Ethics

Entities whose actions poses macroeconomic consequences are also more important than those whose impacts are limited in scope (Brooks and Dunn, 2009).... Stakeholders of a corporation Stakeholders to a corporation are people, groups of people, and entities with interest in the corporation's achievements.... A corporation's employees are another set of stakeholders with stake in job security and the corporation's ability to pay remunerations in time....
3 Pages (750 words) Research Paper

Establishing Businesses in Guam

This would be determined by the following factors; investor's ownership, management responsibilities and tax consequences.... In the case of starting a corporation, a type of business which has legal rights that separate its liability from the owners' and it's chartered by the state (Norman, 1999).... A corporation that seeks to be taxed as a corporation is called a “C” corporation.... The various types of businesses include; sole proprietorship which has advantages like quicker tax preparations, low start up costs and ease of money handling....
5 Pages (1250 words) Assignment

A Penetrating Analysis

This essay, which shall describe both attacks, will attempt to clarify the extent to which the unauthorised penetration of a company's network can have consequences which extend beyond damage and impact to the potentially catastrophic. … The first security incident to which the company was exposed was not a consequence of an outsider attack but an insider's theft of the network administrator's password.... The consequences, in other words, could have been more damaging than they ultimately were, not because the company's network security system was effective but because the attacker's goal was limited to the uploading of the virus in question....
4 Pages (1000 words) Case Study

Purification Planning for Sole Proprietor

Before making his decision, he requests our advice on all the tax consequences resulting from such a decision.... dward Lau has asked us to explore the rules applicable to purification planning, identify situations that may come under the provisions of the rules, and determine the tax consequences.... hellip; 12 This paper analyzes the prickly effects associated with maintaining a corporation "pure" so that its shares come under the purview of qualified small business corporation shares....
10 Pages (2500 words) Case Study

Capital Requirements for Bluegill Corporation

Furthermore, when an entity undergoes bankruptcy proceedings and files for Chapter 11, the assets of the corporation is transferred to the bankruptcy estate, however "a transfer (other than by sale or exchange) of an asset from the debtor to the estate shall not be treated as a disposition for purposes of any provision assigning tax consequences to a disposition and the estate shall be treated as the debtor would be treated with respect to such asset" (IRC section 1398(f)).... As a result of the current economic downturn, Susan, sole owner of Bluegill corporation, needs to invest an additional $80,000 for working capital requirements of the business....
3 Pages (750 words) Essay

Corporate Income Taxes - Reorganizations and Consolidated Tax Returns

As such, these commitments do not affect the principal acquiring corporation.... In so doing, the acquiring company is not overwhelmed with the unwanted liabilities of the acquired corporation and does not undergo much struggle in offsetting them.... The advantages of Type A reorganizations include the fact that it is not necessarily that consideration should be given in terms of voting stock by the acquiring company....
5 Pages (1250 words) Research Paper

Disadvantages and Tax Consequences of Partnerships

nbsp; Essay: Finance and accounting Disadvantages and tax consequences of partnerships Whereas partnerships are some of the most popular and simplest form of startups, the businesses usually come with their own disadvantages which include; first and foremost the liability of a partnership is unlimited implying that if the enterprise as a whole becomes insolvent and indebted, the personal assets of the partners may be attached to take care of the debts.... Thus, for example, loss or income distribution or allocation should be proportional to the ownership stakes of the stakeholders of a given corporation, whereas for a partnership, it may allocate cash flow or income amongst the partners that suits them best....
1 Pages (250 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us