Federal Taxes

What is the purpose of Code Sec. 351 in regard to transfers to corporations?

The purpose of Code Sec. 351 is to allow shareholders of a corporation to defer recognition of a gain or loss on the transfer of assets to a corporation. The transfer of property can be made when a new corporation is formed, or when additional capital is put into existing corporations. Without Code Sec. 351, sole proprietors and partnerships would have a difficult time adopting the corporate form of organization for legal and tax purposes because the transfer of appreciated property would create a taxable transaction. The deferral of gain or loss under this section is justified because the assets have simply been transferred to a corporation that is controlled by the transferors. Section 351 also prevents the recognition of losses on transfers of property that has declined in value.

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What tax years are available to corporations? How do the options differ from other forms of business organizations?

Upon establishing a new corporation, the corporation may choose either a calendar year or a fiscal year. They may choose either of the two regardless of the tax years of its owners which creates tax savings. This differs from other forms of business organization as the S corporation, the Partnership, and Limited Liability Companies are all required to use the calendar year unless they can establish a business purpose to use a fiscal year.

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What are the differences in the treatment of capital gains and capital losses of corporations and of individuals?

Capital gains and capital losses of corporations and individuals are treated differently. Corporations are not allowed to take deductions for net capital losses in the year in which they occur and they are never allowed to use capital losses to