Organizational Tax Research & Planning

Running head: ORGANIZATIONAL TAX Organizational Tax Research and Planning Name University Course Tutor Date Organizational Tax Research and Planning Methods of Property Transfers that will Most Likely Trigger a Taxable Event to the Client There are several methods which can be used to transfer a property to a corporation. These methods can trigger occurrence of a tax event when the property is transferred to a corporation. These methods have been discussed below. Non-recognition of Gain and Loss The general rule is that no gain shall be recognized if the property being transferred is in direct exchange for the stocks or securities. Under the general tax principles, when a property has been disposed of gain or loss has to be recognized (Hall, 2006). Gain or loss is usually the difference between the fair market value of the property and what the owner of the property receives in return. However, section 351 go against the general tax principles and provides that shareholders do not recognize gain or loss in some transfers of property to a controlled corporation in exchange for stock (Hall, 2006). The argument for this position is that the transactions which involve transfer of the property in exchange for stock merely change the form of investment that the shareholders make. Shareholder’s Basis in Stock The properties that qualify to be transferred to the corporation on shareholder’s basis in the stock have to meet some criteria. The shareholder’s basis in the property transferred has to be determined immediately before the transfer (Traum & Traum, 2009). Once it has been determined, they can subtract the liabilities of the shareholder that have assumed and cash and other non-stock properties that have been received by the shareholders. The gains recognized must also be recognized. Shareholder’s Holding Period Basis The shareholder’s holding period is the holding period of the transferred property. It begins on the date of exchange when the property has been transferred. In case the stocks is received for a combination of both capital and ordinary income property each share of stock is allocated in proportion to the fair market value of the transferred property (Hall, 2006). Depreciation Recapture This is a procedure used to collect income tax on any gain which has been realized by the taxpayers when a property which was previously held has been disposed of. Under this method, the transferor recognizes gain when boot is received. The recapture gain is normally preserved in the transferee’s corporation’s basis in the property that has been transferred. In case where the exchange has taken place, the transferor is not required to recognize any ga...