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Organization Tax Research And Planning The Internal Essay

Organization Tax Research and Planning The Internal Revenue Service has specific rules with regards to transferring property to stock that are based on the value of the property exchanged and the percentage of all voting stock that the group will receive. First of all, the members that are going to take part in the transaction have to be members of one recognized group. The reason for this is that the rules for exchange apply equally to an individual or group that conducts such a transfer. Another caveat to the rules is that the group must be "in control" of the corporation's stock for it to qualify as nontaxable (NTIS, 2011). This rule has been maintained with the tax code for quite some time (National Tax Services, 2004) and requires that the parties acquire at least 80% of the stock for the transaction to qualify as "in control." The transaction can also...

This outlines the two situations which may require determine what is best for the client as far as the proposed transaction is concerned.
In the first instance, the transaction is not taxable if the group acquires greater than 80% of all voting stock (National Tax Services, 2004). This is the best option for the group if they want to incur the smallest tax liability. NTIS (2011) provides the example of;

You and Bill Jones buy property for $100,000. You both organize a corporation when the property has a fair market value of $300,000. You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. No gain is recognized by you, Bill, or the corporation.

In this example, the group has acquired…

Sources used in this document:
References

National Tax Information Service (NTIS). (2011). Property exchanged for stock. Retrieved from http://taxmap.ntis.gov/taxmap/pubs/p542-001.htm

National Tax Services. (2004). Exchange of property for stock. Retrieved from http://www.unclefed.com/IRS-Forms/2001/HTML/p54202.html
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