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351 (those who qualify dont recognize gain or loss when transferring property)

General Formulas

1) Amount Realized = FMV + Cash (whatever you get from the transfer)

2) Realized Gain/Loss = Amount Realized Adj. Basis of the property being transferred

a. Adj. Basis = Cost Depreciation

3) Recognize Gain= Lesser between Boot (cash) & Realized Gain

4) Shareholders Basis= Adj. Basis of property + Recognized Gain Boot Liability (Mortgage)

5) Basis on the cash= boot (cash)

6) Corporation Gain= 0 *always

7) Corporation Basis= Basis of the property + Recognized Gain Reduction

Basis > FMV, then:

1)

2)

3)

4)

5)

Recognize Gain/Loss= 0 *always, because a corporations NEVER recognizes a loss

Shareholders Basis= Basis + Recognized Gain (will be 0) Boot Liability

Corporation Gain= 0 *always

Corporation Basis = FMV

Liability > Basis, then:

1)

2)

3)

4)

5)

6)

Realized Gain/Loss= FMV (of the stock) + Liability Basis

Recognize Gain= Liability Basis

Shareholders Basis= Basis + Recognized Gain Boot Liability= *always 0

Corporation Gain= 0

Corporation Basis= Basis + Recognized Gain Reduction (* in this case it will always be 0)

1)

2)

3)

4)

5)

6)

7)

Services x 10%, must equal same amount as the property being transferred, or less to qualify

Amount Realized = FMV

Realized Gain/Loss = Services

Recognize Gain= Services (which is treated as ordinary income)

Shareholders Basis= Services + Property (such as cash)

Corporation Gain= 0

Corporation Basis= Basis of the Services (0, because youre not transferring property) + Recognized Gain

Reduction (0)

8) The corporation will be able to expense $5,000 in the current year and amortize the remaining (Corporation

9) Basis 5,000) in 15 years as an organizational cost.

*Holding Period= For how long youve owned the transfer, except with cash. It begins the day after the exchange

date.

Chapter 3

Step 1:

Charitable Distribution

year

If any,

Carryforward for 5 years

Gross Income

+ Dividend Income

-Operating Expenses

Taxable Income

x 10%

Charitable Distribution

-Charitable Distributions made

in cash

ANSWER is an excess

Step 2:

Taxable Income for that year

Gross

+Dividend

-Operating Expenses

Taxable Income

-Charitable Deduction

Taxable income before DRD

deduction

Step 3:

DRD, if ownership is:

-less than 20%, then 70%

deduction

-20% or more, then 80%

-80%, then 100%

-Select the lesser of Tax.Inc.

bef. DRD or Dividend income,

then x.7,.8, or 1

-Select the lesser of Tax.Inc.

bef. DPAD or QPAI, then x .09

QPAI=Gross IncomeOperating Exp.

deduction

DRD

DPAD

Taxable Income

Step 4:

If there is a Net Operating

Loss (NOL)

(Tax.Inc. NOL)(.10)=

Gross Income

+Dividend Income

-Operating Expenses

Taxable Income

Charitable Distribution

by NOL)

Taxable income before

DRD

Taxable income before

NOL

Taxable income before

(affected

DRD

NOL

DPAD

DPAD

Taxable Income

Chapter 4

General Formulas

Distribution of Appreciated Property

1)

2)

3)

4)

5)

6)

Basis in the land = FMV

Corporation Gain = FMV Basis

New CE&P= CAE&P + Gain Tax

Effect on E&P= New E&P Dividend Income

Effect on E&P after distribution= CE&P+Gain after subtracting tax= New CE&P

Distribution= CE&P+AE&P

1) Income Recognized- You need to have had the option between cash or stock. If

given the option and you chose tax then the gain=cash, if stock then the

gain=FMV-Basis

2) Recognized Gain/loss= Allocate Basis

a. Basis Allocation for Pref. Stock= Original Basis x (Distribution Price or FMV x

P.S shares)/(Total for both)

b. Total for both= (Distribution Price or FMV x P.S shares) + (Distribution Prince

or FMV C.S x C.S)

3) Basis on the remaining share (C.S & P.S)= Selling Price (Basis pf P.S or C.S)

When there is no cash distribution, then, you find the gain first:

1) Corporation Gain = Realized Gain (of individual 1) + any other individuals involved

a. Realized Gain= FMV Basis

2) Tax = Gain (1) x 25%

3) New Current E&P= CE&P + Gain(1) Tax

Individual 1

FMV or Cash

Distribution

(1)

CE&P

AE&P

(2) (1)(%)

Ignore

Dividend

Income

(1)=CE&P

Individual 2

(2)

(3) (1)(%)

Ignore

(2)=CE&P

Total(s)

(3)

(1)

(1)

ROC

(1) FMV

Dividend Inc.

(2) FMV

Dividend Inc.

Determine %

of each=

(1)/Total

New Basis = Stock Basis (for the stock) ROC

Individual 1= New Basis

Individual 2= (New Basis) should be negative

Then, add (2) New Basis, and write, Basis was reduced to $xx,xxx (sum of 2 basis) and

(negative basis) capital gain, so his new basis= 0.

When you sell and there are cash distributions and CE&P= Positive Number, and

AE&P= Positive Number

Distribution

CE&P

Individual 1

(1)

(2) (1)

(%)

Individual 2

(2)

(3) (1)

(%)

Total(s)

(3)

Determine

% of each=

(1)/Total

(1)

AE&P

(2) (1 CE&P)

If the subtraction

is greater than (1),

then allocate

everything in

Ind.1, so (Step 2)

= (1)

(3)

Dividend

Income

(1)=CE&P+A

E&P

(2)=CE&P+A

E&P

ROC

(1)

Distribution

Dividend

Inc.

(2)

Distribution

Dividend

Inc.

(1)

Individual 1 (seller)= New Basis, so since he sold it theres a capital gain

Capital Gain (seller)= Selling Price New Basis

Individual 2 (buyer)= Selling Price New Basis (of individual 1)

When theres a deficit in CE&P= (Negative Number) it means that there will be a loss

every day of the year, and AE&P= Positive Number

Individual 1

FMV or Cash

Distribution

(1)

CE&P

(2) Ignore

AE&P

*Calculate

Dividend

Income

(1)=AE&P

ROC

(1)

the

Individual 2

(2)

(3) Ignore

Total(s)

(3)

(1)

Determine %

of each=

(1)/Total

Loss, in

order,

(2)=AE&P

Distribution

Dividend

Inc.

(2)

Distribution

Dividend

Inc.

To obtain

how much

will be

allocated

Before continuing to calculate for AE&P, you MUST, calculate the Loss due to a negative

CE&P

1) CE&P/365 days= $xxx loss per day

2) Loss per distribution= day before payment x loss

1st distribution (March 1st)= day before payment is February 28th= so from Jan. 1st

Feb. 28th = 31 days + 28 days = 59 days - - - > 59 days x (1) loss = (loss)

2nd distribution (Sept. 1st)= day before is Aug. 31st = so from March. 1st Aug. 1st =

31 (mar) + 30 (apr.) + 31 (may) +30 (jun.) + 31 (jul.) + 31 (aug.)= 184 days x loss

= (loss during second distribution)

3) Distribution

AE&P (given)

-1st distribution loss

xxx,xxxx

-1st cash distribution

xxx,xxx (if this answer is smaller than the 1st

cash distribution that was made, then allocate

the full amount to AE&P

-2nd distribution loss

xxx,xxx

-2nd cash distribution (if the 2nd cash distribution

> xxx,xxx, this means there is not enough

money, so allocate xxx,xxx

New Basis = Stock Basis (for the stock) ROC

Individual 1 (seller)= New Basis, so since he sold it theres a capital gain

Capital Gain (seller)= Selling Price New Basis

Individual 2 (buyer)= Selling Price New Basis (of individual 1)

Effect on AE&P

Original on AE&P

-Total Dividend Income (for

both)

xxx,xxx

-CE&P

New AE&P

In case both AE&P and CE&P are negative, then theres no dividend income, no effect on

E&P, and theres no gain. And the distribution will be Return on Capital (ROC) and

anything that exceeds ROC will be negative.

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