Discussion:Recording shareholder contribution
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Discussion Forum Index --> Tax Questions --> Recording shareholder contribution
| 1 January 2009 | |
| i have a client contributing equipments worth of $6500 and the other shareholder contributing $6500 cash. both are getting 100 shares of $65 stock. the problem is the total adjusted basis of the equipments is around $9000. how do i record this entry in to the book. i am using tax basis for this company. | |
| 3 January 2009 | |
| Scow,
If the shareholder is receiving $6500 of stock, that would be the basis for the equipment in the new company. If my business goes and buys a piece of equipment from another company for $6500, that is my basis in the equipment. They need to handle the issue with their basis. If there adjusted basis is $9,000, then they have a $2,500 loss. If there basis is $4,000, then they have a $2,500 gain. If this is equipment that the shareholder owns personally then he's out that $2,500. | |
| 3 January 2009 | |
| i thought the corp has to take the sh's adjusted basis which is $9000. there is a code saying the sh can't recongnize gain or loss on property contribution but the corp has to take the sh's adjusted basis. lets say he is a sole sh then the accounting entry will be Debit $9000 and credit $6500? i m not sure how can i balance this entry. | |
| 4 January 2009 | |
| Using tax basis accounting, credit stockholder's equity for $9,000. No gain or loss is realized or recognized. Sec. 351(a). | |
| 4 January 2009 | |
| hi, if i entry $9000 equity for this sh, he will have more than 50% of capital. the other sh has only $6500 equity. | |
| 5 January 2009 | |
| Scow, a shareholder really doesn't own a specific piece of stockholders' equity. Thus, I can contribute 99% of capital, but still only own 50% of the corporation. | |
| 5 January 2009 | |
| The basis to a corporation of assets contributed to it, according to Section 351(h), is calculated using Section 362.
Not that I want to complicate things but the American Jobs Creation Act of 2004, in a desperate effort to raise some funds and balance the legislation's effect on the budget added Section 362(e)(2). Apparently, Congress was concerned that if you contributed a "built-in loss" asset to a corporation, the corporation would sell the asset at a loss and you would sell the stock for a loss and the United States Treasury would be somewhat depleted. The commentary I have read indicates that this was not a real issue due to Section 382 and the regulations under Section 1502. In any case, Section 362(e)(2) seems to require that the corporate basis in the "built-in loss" assets contributed (if in aggregate the FMV of contributed assets is less than the bases) is reduced by the net built-in loss of all contributed assets. This reduction in the corporation's basis in "built-in loss" assets can be avoided by the election available in Section 362(e)(2)(C ). Without the election the balance sheet would look like this: cash 6,500 equipments 6,500 Common Stock 13,000 With the election: cash 6,500 equipments 9,000 Common Stock 15,500 The reduction in basis to FMV does not create a loss anywhere, for either the contributing stockholder or for the corporation. There is now a disconnect between Stockholder basis and corporation basis: no longer a straight substituted basis. The election creates a disconnect as well. The stockholder contributing the equipments must reduce his basis in corporate stock to $6,500. This probably has interesting implications for an S corporation. As well as Section 1244(d)(1). I don't think the 2008 bail out bill changed Section 362. I wonder if this Section could be used to defend against any IRS attacks on "bargain purchases" that may precede a LIFO election? | |
Harry Boscoe (talk|edits) said: | 5 January 2009 |
| ...IRC Section 362(e)(2).
Omigosh, I *knew* I shouldn't go out for drinks after those CPE courses. I totally and completely missed this... 351 just ain't what it used to be. | |
| January 5, 2009 | |
| Weird, interesting, unsettling. All at the same time. So again, Riley is right...you have a disconnect between the equity section and ownership on day 1. Never seen that before. And what kind of documentation will you keep to track this? ......... | |
