Question

Taxation - Code 351 Problem: Transfer to corporation controlled by transferor

Please help me figure out the tax effects to both the shareholder and corporation. (What's each shareholder's recognized gain or loss, basis in their shares and the company's basis in the assets). All assets and liabilities were given during the incorporation.

Shareholder A gave $100,000 in cash for 20% ownership/shares.

Shareholder B gave a book binding equipment FMV $110,000, basis 30,000 and received $10,000 in cash plus 20% ownership/shares.

Shareholder C gave a building FMV $350,000, basis $100,000, and also the company took the building with a mortgage note of $250,000, for 20% ownership/shares.

Shareholder D gave paper inventory FMV $60,000, basis $55,000, plus a delivery truck FMV 40,000, basis $50,000 and received 20% ownership/shares

Shareholder E gave a printing press FMV $50,000, basis $30,000, plus copyrights FMV $60,000, basis $30,000 for 20% ownership/shares plus $10,000 in cash.

Answer 1

For Shareholder A

Tax effect to shareholder = NIL

Tax effect to corporation = NIL

Gain or Loss to Shareholder = NIL

Gain or Loss to Corporation = NIL

For Shareholder B

Tax effect to shareholder = $90,000 for Capital Gain

Tax effect to corporation = NIL

Gain to Shareholder = $80,000

Gain or Loss to Corporation = NIL

For Shareholder C

Tax effect to shareholder = $250,000 for Capital Gain

Tax effect to corporation = NIL

Gain to Shareholder = $250,000

Gain or Loss to Corporation = NIL

For Shareholder D

Tax effect to shareholder = $5,000 for Capital Loss

Tax effect to corporation = $5,000 for Capital Gain

Loss to Shareholder = $5,000

Gain to Corporation = $5,000

For Shareholder E

Tax effect to shareholder = $60,000 for Capital Gain

Tax effect to corporation = NIL

Gain to Shareholder = $50,000

Gain or Loss to Corporation = NIL