Asked by Kevin Starrett on May 11, 2024
Verified
When a corporation is formed,if the sole shareholder contributes property and receives,in return,stock plus property,the individual will report a taxable gain equal to the FMV of the property received.
Sole Shareholder
A single individual or entity that holds all the shares of a corporation, essentially owning the company outright.
FMV
Stands for Fair Market Value, which is the price that property would sell for on the open market.
Taxable Gain
The portion of profit or income derived from selling an asset that is subject to taxation.
- Recognize the requirements and tax implications of forming a corporation, including the tax-free exchange provision.
Verified Answer
TM
Trixie MendezMay 12, 2024
Final Answer :
False
Explanation :
The individual will not report a taxable gain as long as the transaction qualifies for non-recognition of gain under Section 351 of the Internal Revenue Code, which generally requires that the person(s) transferring property to the corporation must control the corporation immediately after the exchange.
Learning Objectives
- Recognize the requirements and tax implications of forming a corporation, including the tax-free exchange provision.