Federal Income Tax 2 – Discussion W2

The formation and funding of a corporation can produce unwanted tax consequences for several reasons. One of the reasons is because, during the exchange or the transfer, no gain or
loss is noted down, especially if the formation and funding are done in exchange for the stocks.
Another reason is that, during the financing and the creation, the ownership is transferred from
one individual to another. More so, the gain realized in the formation and funding of the
corporation will only be recognized but not in instances where it exceeds the amount that was
received or paid.
The tax code suggests that the corporation will distribute all the stock that is within the
corporation and that they received during the funding and formation to the shareholders. The
strategy will be useful in reducing the consequence of recognizing the gains and losses as not all
of the amount will be taken into account. There is a need to attach a statement in the tax returns
in the year of transfer. The report will curb the consequences by providing a clear description of
the corporation’s property, liabilities, and stock.
Examples of planning opportunities in section 351 include the transfer of foreign
corporations and recapture provisions. The planning opportunities that are present in the
formation of corporations have to have a high basis. The plan should be formulated to give room
for the contributor to avoid section 352 and be in a position to make recognition of the losses.
Such can be achieved through the transferor making a sale of the property to an unrelated party
and then make contributions of the cash.