Chapter 4Chapter 4
Corporations:Organization and Capital Structure
Corporations:Organization and Capital Structure
Copyright ©2008 South-Western/Thomson LearningCopyright ©2008 South-Western/Thomson Learning
Corporations, Partnerships,Corporations, Partnerships,Estates, & TrustsEstates, & Trusts
C4 - 2Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Corporation Formation TransactionCorporation Formation Transaction
C4 - 3Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Formation ExampleFormation Example
Ron will incorporate his donut shop:
Asset Fair Mkt
Tax Basis Value .
Cash $10,000 $ 10,000Furniture & Fixtures 20,000 60,000Building 40,000 100,000Total $70,000 $170,000
• Without §351: gain of $100,000.• With §351: no gain or loss. Ron’s economic status has not
changed.
Ron will incorporate his donut shop:
Asset Fair Mkt
Tax Basis Value .
Cash $10,000 $ 10,000Furniture & Fixtures 20,000 60,000Building 40,000 100,000Total $70,000 $170,000
• Without §351: gain of $100,000.• With §351: no gain or loss. Ron’s economic status has not
changed.
C4 - 4Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Consequences of §351(slide 1 of 2)
Consequences of §351(slide 1 of 2)
• In general, no gain or loss to transferors:– On transfer of property to corporation– In exchange for stock– IF immediately after transfer, transferors are in
control of corporation
• In general, no gain or loss to transferors:– On transfer of property to corporation– In exchange for stock– IF immediately after transfer, transferors are in
control of corporation
C4 - 5Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Consequences of §351(slide 2 of 2)
Consequences of §351(slide 2 of 2)
• If boot (property other than stock) received by transferors– Gain recognized up to lesser of:
• Boot received or
• Realized gain
– No loss is recognized
• If boot (property other than stock) received by transferors– Gain recognized up to lesser of:
• Boot received or
• Realized gain
– No loss is recognized
C4 - 6Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Issues re: Formation(slide 1 of 7)
Issues re: Formation(slide 1 of 7)
• Definition of property includes:– Cash– Secret processes and formulas– Unrealized accounts receivable (for cash basis
taxpayer)– Installment obligations
• Code specifically excludes services from definition of property
• Definition of property includes:– Cash– Secret processes and formulas– Unrealized accounts receivable (for cash basis
taxpayer)– Installment obligations
• Code specifically excludes services from definition of property
C4 - 7Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Issues re: Formation(slide 2 of 7)
Issues re: Formation(slide 2 of 7)
• Stock transferred– Includes common and most preferred stock
• Does not include nonqualified preferred stock which possesses many attributes of debt
– Does not include stock rights or stock warrants– Does not include corporate debt or securities
(e.g., corporate bonds)• Treated as boot
• Stock transferred– Includes common and most preferred stock
• Does not include nonqualified preferred stock which possesses many attributes of debt
– Does not include stock rights or stock warrants– Does not include corporate debt or securities
(e.g., corporate bonds)• Treated as boot
C4 - 8Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Issues re: Formation (slide 3 of 7)
Issues re: Formation (slide 3 of 7)
• Transferors must be in control immediately after exchange to qualify for nontaxable treatment– To have control, transferors must own:
• 80% of total combined voting power of all classes of stock entitled to vote, and
• 80% of total number of shares of all other classes of stock
• Transferors must be in control immediately after exchange to qualify for nontaxable treatment– To have control, transferors must own:
• 80% of total combined voting power of all classes of stock entitled to vote, and
• 80% of total number of shares of all other classes of stock
C4 - 9Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Issues re: Formation (slide 4 of 7)
Issues re: Formation (slide 4 of 7)
• “Immediately after” the transfer– Does not require simultaneous transfers if more
than one transferor– Rights of parties should be outlined before first
transfer– Transfers should occur as close together as
possible
• “Immediately after” the transfer– Does not require simultaneous transfers if more
than one transferor– Rights of parties should be outlined before first
transfer– Transfers should occur as close together as
possible
C4 - 10Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Issues re: Formation (slide 5 of 7)
Issues re: Formation (slide 5 of 7)
• After control is achieved, it is not necessarily lost upon the sale or gift of stock received in the transfer to others not party to the initial exchange
• But sale might violate §351 if prearranged
• After control is achieved, it is not necessarily lost upon the sale or gift of stock received in the transfer to others not party to the initial exchange
• But sale might violate §351 if prearranged
C4 - 11Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Issues re: Formation (slide 6 of 7)
Issues re: Formation (slide 6 of 7)
• Transfers for property and services– May result in service provider being treated as
a member of the 80% control group• Taxed on value of stock issued for services
• Not taxed on value of stock received for property contributions
– Service provider should transfer property having more than “a relatively small value”
• Transfers for property and services– May result in service provider being treated as
a member of the 80% control group• Taxed on value of stock issued for services
• Not taxed on value of stock received for property contributions
– Service provider should transfer property having more than “a relatively small value”
C4 - 12Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Issues re: Formation (slide 7 of 7)
Issues re: Formation (slide 7 of 7)
• Subsequent transfers to existing corporation– Tax-free treatment still applies as long as
transferors in subsequent transfer own 80% following exchange
• Subsequent transfers to existing corporation– Tax-free treatment still applies as long as
transferors in subsequent transfer own 80% following exchange
C4 - 13Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Assumption of Liabilities(slide 1 of 2)
Assumption of Liabilities(slide 1 of 2)
• Assumption of liabilities by corp DOES NOT result in boot to the transferor shareholder for gain recognition purposes – Liabilities ARE treated as boot for determining
basis in acquired stock• Basis of stock received is reduced by amount of
liabilities assumed by the corp
• Assumption of liabilities by corp DOES NOT result in boot to the transferor shareholder for gain recognition purposes – Liabilities ARE treated as boot for determining
basis in acquired stock• Basis of stock received is reduced by amount of
liabilities assumed by the corp
C4 - 14Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Assumption of Liabilities(slide 2 of 2)
Assumption of Liabilities(slide 2 of 2)
• Liabilities are NOT treated as boot for gain recognition unless:– Liabilities incurred for no business purpose or as
tax avoidance mechanism • Boot = Entire amount of liability
– Liabilities > basis in assets transferred• Gain recognized = Excess amount (liabilities - basis)
• Liabilities are NOT treated as boot for gain recognition unless:– Liabilities incurred for no business purpose or as
tax avoidance mechanism • Boot = Entire amount of liability
– Liabilities > basis in assets transferred• Gain recognized = Excess amount (liabilities - basis)
C4 - 15Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Formation with Liabilities Example (slide 1 of 2)
Formation with Liabilities Example (slide 1 of 2)
Property transferred has:
Fair market value = $150,000Basis = 100,000Realized Gain = $ 50,000
Property transferred has:
Fair market value = $150,000Basis = 100,000Realized Gain = $ 50,000
C4 - 16Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Formation with Liabilities Example (slide 2 of 2)
Formation with Liabilities Example (slide 2 of 2)
Liabilities assumed by corp. (independent facts):
Business Business No Business
Purpose Purpose Purpose
Liability: $80,000 $120,000 $120,000
Boot None $ 20,000 $120,000GainRecognized None $20,000 $ 50,000*
*(Gain is lesser of $50,000 realized gain or boot)
Liabilities assumed by corp. (independent facts):
Business Business No Business
Purpose Purpose Purpose
Liability: $80,000 $120,000 $120,000
Boot None $ 20,000 $120,000GainRecognized None $20,000 $ 50,000*
*(Gain is lesser of $50,000 realized gain or boot)
C4 - 17Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Basis Computation for §351 Exchange (slide 1 of 2)
Basis Computation for §351 Exchange (slide 1 of 2)
• Shareholder’s basis in stock: Adjusted basis of transferred assets
+ Gain recognized on exchange- Boot received- Liabilities transferred to corporation- Minus: Adjustment for loss property (if elected)= Basis of stock received by shareholder
• Shareholder’s basis in stock: Adjusted basis of transferred assets
+ Gain recognized on exchange- Boot received- Liabilities transferred to corporation- Minus: Adjustment for loss property (if elected)= Basis of stock received by shareholder
C4 - 18Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Basis Computation for §351 Exchange (slide 2 of 2)
Basis Computation for §351 Exchange (slide 2 of 2)
• Corporation’s basis in assets:
Adjusted basis of transferred assets
+ Gain recognized by transferor shareholder
- Adjustment for loss property (if required)
= Basis of assets to corporation
• Corporation’s basis in assets:
Adjusted basis of transferred assets
+ Gain recognized by transferor shareholder
- Adjustment for loss property (if required)
= Basis of assets to corporation
C4 - 19Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Basis in Stock in Last ExampleBasis in Stock in Last Example
Adjusted Basis of transferred assets: $100,000Liabilities assumed by corp. (independent facts):
Business Business No Business Purpose Purpose Purpose .Liability: $ 80,000 $120,000 $120,000Basis in assetsTransferred $100,000 $ 100,000 $100,000+ Gain recognized None 20,000 50,000- Liab. Transferred (80,000) (120,000) (120,000)Basis in stock $ 20,000 -0- $ 30,000
Adjusted Basis of transferred assets: $100,000Liabilities assumed by corp. (independent facts):
Business Business No Business Purpose Purpose Purpose .Liability: $ 80,000 $120,000 $120,000Basis in assetsTransferred $100,000 $ 100,000 $100,000+ Gain recognized None 20,000 50,000- Liab. Transferred (80,000) (120,000) (120,000)Basis in stock $ 20,000 -0- $ 30,000
C4 - 20Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Corporation’s Basis in Assets Received in Last Example
Corporation’s Basis in Assets Received in Last Example
Liabilities assumed by corp. (independent facts):
Business Business No Business
Purpose Purpose Purpose
Liability: $ 80,000 $120,000 $120,000
Basis of trans-
ferred assets: $100,000 $100,000 $100,000
Gain recognized
by shareholder None 20,000 50,000
Basis to Corp. $100,000 $120,000 $150,000
Liabilities assumed by corp. (independent facts):
Business Business No Business
Purpose Purpose Purpose
Liability: $ 80,000 $120,000 $120,000
Basis of trans-
ferred assets: $100,000 $100,000 $100,000
Gain recognized
by shareholder None 20,000 50,000
Basis to Corp. $100,000 $120,000 $150,000
C4 - 21Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Basis Adjustment for Loss Property (slide 1 of 2)
Basis Adjustment for Loss Property (slide 1 of 2)
• When built-in loss property is contributed to a corporation– Aggregate basis in property may have to
be stepped down so basis does not exceed the F.M.V. of property transferred• Necessary to prevent parties from obtaining
double benefit from losses involved
• When built-in loss property is contributed to a corporation– Aggregate basis in property may have to
be stepped down so basis does not exceed the F.M.V. of property transferred• Necessary to prevent parties from obtaining
double benefit from losses involved
C4 - 22Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Basis Adjustment for Loss Property (slide 2 of 2)
Basis Adjustment for Loss Property (slide 2 of 2)
• Step-down in basis is allocated among assets with built-in loss– Alternatively, if shareholder and corporation
both elect, the basis reduction can be made to the shareholder’s stock
• Built-in loss adjustment places loss with either the shareholder or the corporation but not both
• Step-down in basis is allocated among assets with built-in loss– Alternatively, if shareholder and corporation
both elect, the basis reduction can be made to the shareholder’s stock
• Built-in loss adjustment places loss with either the shareholder or the corporation but not both
C4 - 23Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Stock Issued for Services RenderedStock Issued for
Services Rendered
• Corporation may be able to deduct the fair market value of stock issued in exchange for services as a business expense – e.g., Performance of management services– May claim a compensation expense deduction under
§ 162• If the services are such that the payment is
characterized as a capital expenditure (e.g., legal services in organizing the corporation)– Must capitalize the amount as an organizational
expenditure
• Corporation may be able to deduct the fair market value of stock issued in exchange for services as a business expense – e.g., Performance of management services– May claim a compensation expense deduction under
§ 162• If the services are such that the payment is
characterized as a capital expenditure (e.g., legal services in organizing the corporation)– Must capitalize the amount as an organizational
expenditure
C4 - 24Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Holding PeriodHolding Period
• Holding period of stock received – For capital assets or §1231 property, includes
holding period of property transferred to corporation
– For other property, begins on day after exchange
• Corp’s holding period for property acquired in the transfer is holding period of transferor
• Holding period of stock received – For capital assets or §1231 property, includes
holding period of property transferred to corporation
– For other property, begins on day after exchange
• Corp’s holding period for property acquired in the transfer is holding period of transferor
C4 - 25Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Recapture ConsiderationsRecapture Considerations
• In a § 351 transfer where no gain is recognized, the depreciation recapture rules do not apply– Recapture potential associated with the
property carries over to the corporation
• In a § 351 transfer where no gain is recognized, the depreciation recapture rules do not apply– Recapture potential associated with the
property carries over to the corporation
C4 - 26Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Capital Contributions (slide 1 of 3)Capital Contributions (slide 1 of 3)
• No gain or loss is recognized by corp on receipt of money or property in exchange for its stock– Also applies to additional voluntary pro rata
contributions of money or property to a corp even though no additional shares are issued
• No gain or loss is recognized by corp on receipt of money or property in exchange for its stock– Also applies to additional voluntary pro rata
contributions of money or property to a corp even though no additional shares are issued
C4 - 27Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Capital Contributions (slide 2 of 3)Capital Contributions (slide 2 of 3)
• Capital contributions of property by nonshareholders– Not taxable to corporation– Basis of property received from nonshareholder
is -0-
• Capital contributions of property by nonshareholders– Not taxable to corporation– Basis of property received from nonshareholder
is -0-
C4 - 28Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Capital Contributions (slide 3 of 3)Capital Contributions (slide 3 of 3)
• Capital contributions of cash by nonshareholder– Must reduce basis of assets acquired during 12
month period following contribution– Any remaining amount reduces basis of other
property owned by the corp• Applied in the following order to depreciable
property, amortizable property, assets subject to depletion, and other remaining assets
• Capital contributions of cash by nonshareholder– Must reduce basis of assets acquired during 12
month period following contribution– Any remaining amount reduces basis of other
property owned by the corp• Applied in the following order to depreciable
property, amortizable property, assets subject to depletion, and other remaining assets
C4 - 29Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Debt vs. Equity(slide 1 of 2)
Debt vs. Equity(slide 1 of 2)
• Debt– Corporation pays interest to debt holder which
is deductible by corporation– Interest paid is taxable as ordinary income to
individual or corporate recipient– Loan repayments are not taxable to investors
unless repayments exceed basis
• Debt– Corporation pays interest to debt holder which
is deductible by corporation– Interest paid is taxable as ordinary income to
individual or corporate recipient– Loan repayments are not taxable to investors
unless repayments exceed basis
C4 - 30Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Debt vs. Equity(slide 2 of 2)
Debt vs. Equity(slide 2 of 2)
• Equity:– Corporation pays dividends which are not
deductible• Taxable to individuals at low capital gain rates to
extent corp has E & P
• Corporate shareholder may receive dividends received deduction
• Equity:– Corporation pays dividends which are not
deductible• Taxable to individuals at low capital gain rates to
extent corp has E & P
• Corporate shareholder may receive dividends received deduction
C4 - 31Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Reclassification of Debt as Equity
Reclassification of Debt as Equity
• If corp is “thinly capitalized,” i.e., has too much debt and too little equity– IRS may argue that debt is really equity and
deny tax advantages of debt financing– If debt has too many features of stock, principal
and interest payments may be treated as dividends
• If corp is “thinly capitalized,” i.e., has too much debt and too little equity– IRS may argue that debt is really equity and
deny tax advantages of debt financing– If debt has too many features of stock, principal
and interest payments may be treated as dividends
C4 - 32Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Thin Capitalization Factors(slide 1 of 2)
Thin Capitalization Factors(slide 1 of 2)
• Debt instrument documentation
• Debt terms (e.g., reasonable rate of interest and definite maturity date)
• Timeliness of repayment of debt
• Whether payments are contingent on earnings
• Debt instrument documentation
• Debt terms (e.g., reasonable rate of interest and definite maturity date)
• Timeliness of repayment of debt
• Whether payments are contingent on earnings
C4 - 33Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Thin Capitalization Factors(slide 2 of 2)
Thin Capitalization Factors(slide 2 of 2)
• Subordination of debt to other liabilities
• Whether debt and stock holdings are proportionate
• Use of funds (if used to finance initial operations or to acquire capital assets, looks like equity)
• Debt to equity ratio
• Subordination of debt to other liabilities
• Whether debt and stock holdings are proportionate
• Use of funds (if used to finance initial operations or to acquire capital assets, looks like equity)
• Debt to equity ratio
C4 - 34Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Losses on Investment in Corporation (slide 1 of 5)
Losses on Investment in Corporation (slide 1 of 5)
• Stock and security losses– If stocks and bonds are capital assets, losses
from worthlessness are capital losses• Loss is treated as occurring on last day of tax year in
which they become worthless
• No loss for mere decline in value
• Stock and security losses– If stocks and bonds are capital assets, losses
from worthlessness are capital losses• Loss is treated as occurring on last day of tax year in
which they become worthless
• No loss for mere decline in value
C4 - 35Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Losses on Investment in Corporation (slide 2 of 5)
Losses on Investment in Corporation (slide 2 of 5)
• Stock and security losses– If stocks and bonds are not capital assets, losses
from worthlessness are ordinary losses (e.g., broker owned)
– Sometimes an ordinary loss is allowed for worthlessness of stock of affiliated company
• Stock and security losses– If stocks and bonds are not capital assets, losses
from worthlessness are ordinary losses (e.g., broker owned)
– Sometimes an ordinary loss is allowed for worthlessness of stock of affiliated company
C4 - 36Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Losses on Investment in Corporation (slide 3 of 5)
Losses on Investment in Corporation (slide 3 of 5)
• Business versus nonbusiness bad debts– General rule: Losses on debt of corporation
treated as business or nonbusiness bad debt– If noncorporate person lends as investment, loss
is nonbusiness bad debt • Short-term capital loss
• Only deductible when fully worthless
• Business versus nonbusiness bad debts– General rule: Losses on debt of corporation
treated as business or nonbusiness bad debt– If noncorporate person lends as investment, loss
is nonbusiness bad debt • Short-term capital loss
• Only deductible when fully worthless
C4 - 37Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Losses on Investment in Corporation (slide 4 of 5)
Losses on Investment in Corporation (slide 4 of 5)
• Business versus nonbusiness bad debts (con’t)– If corporation is lender, loss is business bad debt
• Ordinary loss deduction
• Deduction allowed for partial worthlessness
• All bad debts of corporate lender qualify as business bad debts
• Business versus nonbusiness bad debts (con’t)– If corporation is lender, loss is business bad debt
• Ordinary loss deduction
• Deduction allowed for partial worthlessness
• All bad debts of corporate lender qualify as business bad debts
C4 - 38Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Losses on Investment in Corporation (slide 5 of 5)
Losses on Investment in Corporation (slide 5 of 5)
• Business versus nonbusiness bad debts (con’t)– Noncorporate lender may qualify for business
bad debt treatment if:• Loan is made in some capacity that qualifies as a
trade or business, or
• Shareholder is in the business of lending money or of buying, promoting, and selling corporations
• Business versus nonbusiness bad debts (con’t)– Noncorporate lender may qualify for business
bad debt treatment if:• Loan is made in some capacity that qualifies as a
trade or business, or
• Shareholder is in the business of lending money or of buying, promoting, and selling corporations
C4 - 39Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
§1244 stock(slide 1 of 4)
§1244 stock(slide 1 of 4)
• Treatment of §1244 stock:– Ordinary loss treatment for loss on stock of
“small business corporation” (as defined)– Gain still capital gain
• Treatment of §1244 stock:– Ordinary loss treatment for loss on stock of
“small business corporation” (as defined)– Gain still capital gain
C4 - 40Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
§1244 stock(slide 2 of 4)
§1244 stock(slide 2 of 4)
• §1244 stock:– Total amount of stock at initial issuance cannot
exceed $1,000,000 (based on basis of property contributed, less liabilities assumed by company)
• §1244 stock:– Total amount of stock at initial issuance cannot
exceed $1,000,000 (based on basis of property contributed, less liabilities assumed by company)
C4 - 41Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
§1244 stock(slide 3 of 4)
§1244 stock(slide 3 of 4)
• Annual loss limitation:– $50,000 or– $100,000 if married filing joint return– Any remaining loss is a capital loss
• Only original holder of §1244 stock (whether an individual or a partnership) qualifies for ordinary loss treatment– Sale or contribution of stock results in loss of §1244
status
• Annual loss limitation:– $50,000 or– $100,000 if married filing joint return– Any remaining loss is a capital loss
• Only original holder of §1244 stock (whether an individual or a partnership) qualifies for ordinary loss treatment– Sale or contribution of stock results in loss of §1244
status
C4 - 42Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
§1244 stock(slide 4 of 4)
§1244 stock(slide 4 of 4)
• If §1244 stock is issued for property with basis > fair market value– For determining ordinary loss, stock basis is
reduced to fair market value on date of exchange
• If §1244 stock is issued for property with basis > fair market value– For determining ordinary loss, stock basis is
reduced to fair market value on date of exchange
C4 - 43Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Gain from Qualified Small Business Stock (slide 1 of 2)
Gain from Qualified Small Business Stock (slide 1 of 2)
• Noncorporate shareholders may exclude 50% of gain from sale or exchange of such stock– Must have held stock for > 5 years and acquired
stock as part of original issue– 50% exclusion can be applied to the greater of:
• $10 million, or• 10 times shareholder’s aggregate adjusted basis of
qualified stock disposed of during year
• Noncorporate shareholders may exclude 50% of gain from sale or exchange of such stock– Must have held stock for > 5 years and acquired
stock as part of original issue– 50% exclusion can be applied to the greater of:
• $10 million, or• 10 times shareholder’s aggregate adjusted basis of
qualified stock disposed of during year
C4 - 44Corporations, Partnerships, Estates & TrustsCorporations, Partnerships, Estates & Trusts
Gain from Qualified Small Business Stock (slide 2 of 2)
Gain from Qualified Small Business Stock (slide 2 of 2)
• Qualified Small Business Corp – C corp with gross assets not greater than $50
million on date stock issued– Actively involved in a trade or business
• At least 80% of corporate assets are used in the active conduct of one or more trade or businesses
• Qualified Small Business Corp – C corp with gross assets not greater than $50
million on date stock issued– Actively involved in a trade or business
• At least 80% of corporate assets are used in the active conduct of one or more trade or businesses