Corporation Formation Section 351 Strategies Tax Compliance and Planning. TCP CPA Exam

Section 351 corporation formation explained for the TCP CPA Exam: master how transferring property to a corporation in exchange for stock can be a tax-free (non-recognition) event, plus the control test, boot, built-in loss property, and liability assumption rules. This lecture is built for CPA candidates studying tax compliance and planning and for practitioners advising on corporate formation and Section 351 tax strategies. Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students. Video Timeline & Key Concepts: 0:00 Key requirements for Section 351: property contribution, stock exchange, and the 80% control test 1:48 Why Section 351 provides non-recognition treatment on corporate formation 4:22 Control test explained: 80% ownership of voting stock immediately after the exchange 7:58 Consequences when Section 351 criteria are not met (taxable sale) 10:06 Applying the rules: contributions, basis, and continuity of ownership 14:49 Services do not qualify as property and are treated as taxable wages 16:35 Mixed contributions of services and property and the 80% threshold 19:28 Built-in loss property: sell first to recognize the loss before contributing 21:53 Boot received: recognizing gain up to the lesser of realized gain or boot 26:39 Liabilities assumed by the corporation and gain when debt exceeds basis Frequently Asked Questions: What makes a Section 351 exchange tax-free? A transfer qualifies for non-recognition when property is exchanged solely for corporate stock and the contributing shareholders together control at least 80% of the voting stock immediately after the exchange. Because the investors continue their ownership in corporate form, no immediate gain or loss is recognized. Why do services not qualify under Section 351? Only property, whether tangible or intangible, counts for Section 351. Stock received in exchange for services is treated as taxable compensation (wages), so a shareholder contributing only services generally recognizes ordinary income and may not count toward the 80% control requirement. What is boot and how is it taxed in a Section 351 transaction? Boot is any cash or non-stock property a shareholder receives in addition to stock. When boot is received, the shareholder recognizes gain equal to the lesser of the realized gain or the fair market value of the boot, though losses are still not recognized. What happens when a corporation assumes a shareholder's liabilities? Assumed debt reduces the shareholder's stock basis. If the liabilities transferred exceed the adjusted basis of the property contributed, the shareholder must recognize gain on the excess to prevent a negative basis. Hashtags: #Section351 #corporateformation #TCPexam #corporatetax #taxplanning #CPAexam #CMAexam #enrolledagentexam #accountingcourses #collegecourses #courses