How do liabilities assumed by a corporation affect a shareholder transferring property to it in a...
How do liabilities assumed by a corporation affect a shareholder transferring property to it in a qualifying Section 351 transfer?
Homework Answers
Normally liabilities transferred creates a tax liability, but it is exempted if it has been transferred under section 351.
Transfer of assets with liabilities attached will be considered as taxable in following situations
1. If transfer is done to avoid tax. - shareholder will recognize gain - lessor of assumed debt or realized gain.
2. If transfer is made with no bonafide purpose - shareholder will recognize gain of lessor of debt assumed or realized gain.
3. If debt assumed exceeds tax basis in asset. Shareholders will recognize such excess as gain.
Except partial gain in following cases , section 351 provides that no gain or loss is recognized when property is transferred to a corporation solely in exchange for stock in such corporation.
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How do liabilities assumed by a corporation affect a shareholder
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