Where Form 1120 C Sections 2023-2024

In this video, we will discuss whether a valid section 351 transaction is possible when one of the transferors is transferring services to the corporation. So, let's review the three requirements for a section 351 transaction. First, the transferors must transfer property solely in exchange for the corporation's stock. Second, they must have control, which means owning 80% of the voting value immediately afterwards. Now, the question arises: what if one of the transferors is also providing services to the corporation in exchange for stock? Does that person count as part of the control group? The short answer is no, but it's a bit more complicated than that. Let me provide an example to illustrate. Imagine you own a ferris wheel with a basis of $100,000 and a fair market value of $975,000. You decide to create a corporation called Seven Flags amusement park and transfer the ferris wheel to the corporation in exchange for 60 shares of voting stock. Additionally, your friend Tito, who is a lawyer or accountant, agrees to provide services in exchange for 40 shares. In total, there are 100 shares of stock in Seven Flags amusement park. You own 60 shares, and Tito owns 40 shares, but he didn't transfer any property. Now, the question is whether you meet the 80% control requirement. Since Tito only provided services, he is not considered part of the control group. If Tito had contributed cash instead of services, then you would have 100% control, considering both your shares and Tito's shares. However, in this case, Tito's contribution is only services, and therefore, you do not meet the 80% control requirement. Consequently, you would be taxed on the gain of $875,000 when transferring the ferris wheel to the corporation. But there is an exception. If Tito also contributes property along with services,...