Which Form 1120 C Transactions 2023-2024

In this video, we're going to discuss how to account for a Section 351 transaction when there's food involved. To understand what food is, let's review the requirements for a Section 351 transaction. The transferors are going to be transferring property solely in exchange for a corporation's stock. They must also have control immediately afterwards. Now, let's talk about boot. Boot is a situation where the corporation gives something other than its stock to the transferor. This could be cash, securities, machines, buildings, or even non-qualified stock. Liabilities transferred from the transferor to the corporation are generally not considered boot, except under Section 357. The question with boot is whether it will lead to a recognized gain. If you're transferring appreciated property, there could be a gain. For example, let's say you own a ferris wheel with a basis of $100,000 and a fair market value of $975,000. Your friend, Bozo the Clown, owns all 20 shares (100%) of a corporation called Seven Flags Amusement Park. Bozo asks you to help him run the corporation, and you agree to transfer the ferris wheel to the corporation in exchange for 80 shares of common voting stock. Bozo is so excited to have you as a partner that he also gives you $2,000 cash. Looking at the requirements of Section 351, you are transferring property to the corporation (the ferris wheel), and you will own 80% of the corporation afterwards. However, you are not transferring solely in exchange for the corporation's stock because you are also receiving the $2,000 cash. This doesn't break the Section 351 transaction, but it does mean that there will be some recognition of gain. The amount recognized is the lesser of two things: the transfer's realized gain and the fair market value of the boot received. In this case, the transfer's realized gain...