Guide
§351 Transfer to Controlled Corporation
Section 351 complete mechanics. Foundational nonrecognition provision for incorporating a business or transferring property to a controlled corporation. §351(a) general rule - no gain or loss when one or more persons transfer property to a corporation SOLELY in exchange for stock IF transferors are in CONTROL immediately after (§368(c) - 80% combined voting power + 80% of each nonvoting class). Property includes cash, real estate, equipment, intangibles - but NOT services (stock for services = §83 compensation; service-only shares don't count toward 80% test; Rev. Proc. 77-37 10% safe harbor). Boot §351(b) - anything other than stock; gain to LESSER of boot FMV or realized gain; loss never recognized. Liabilities assumed §357 - (a) generally not boot; (b) tax-avoidance liabilities = boot; (c) liabilities exceeding aggregate basis = gain recognized. Basis §358(a)(1) substituted to transferor; §362(a) carryover plus gain recognized to corporation. §362(e)(2) anti-loss-duplication; §362(e)(2)(C) transferor election to step down stock basis instead. Investment company exception §351(e). Nonqualified preferred stock §351(g) treated as boot. Statement Reg §1.351-3 required from both sides.
Guide
§197 Goodwill and Intangibles Amortization
Section 197 complete mechanics. Uniform 15-year straight-line amortization of acquired intangibles used in trade or business; replaced pre-1993 useful-life disputes. 14 categories §197(d): goodwill, going concern value, workforce in place, information base, know-how, customer base, supplier base, licenses and permits, covenants not to compete, franchises, trademarks, trade names. Must be ACQUIRED after August 10, 1993 in connection with trade or business §197(c)(1). Self-created intangibles excluded §197(c)(2) - EXCEPT self-created in connection with business acquisition (covenant not to compete given to seller). 15-year period APPLIES REGARDLESS of actual useful life (4-year non-compete still amortized over 180 months). Anti-churning §197(f)(9) - cannot convert pre-Aug 11, 1993 nonamortizable intangibles into amortizable §197 status via related-party transactions or tax-free reorgs; Reg §1.197-2(h). Excluded from §168(k) bonus depreciation AND §179 expensing. §197(f)(1) loss disallowance on single-asset disposition if other §197 intangibles from same acquisition retained - disallowed loss increases basis of retained intangibles. §1060 / Form 8594 purchase price allocation residual method. American Jobs Creation Act 2004 repealed §197(e)(6) sports franchise exclusion.
Guide
§1377 / §1368 S-Corp Allocations and Distributions
Section 1377 and Section 1368 complete mechanics. §1377(a)(1) DEFAULT per-share, per-day allocation - shareholder's share computed by days held and shares held (daily proration of all pass-through items). §1377(a)(2) CLOSING-OF-BOOKS ELECTION on full shareholder termination - year treated as two taxable years; pre-termination items allocated based on actual results; requires unanimous consent of "affected shareholders" (terminating + transferees). Reg §1.1368-1(g)(2) QUALIFYING DISPOSITION ELECTION for 20%+ disposition or 25%+ new issuance - similar closing-of-books treatment; all year-shareholders must consent; §1377(a)(2) trumps where both apply. §1368 DISTRIBUTION ORDERING: S corp without C corp E&P → reduces basis tax-free; excess capital gain. With C corp E&P → (1) AAA tax-free to basis, (2) PTI, (3) C corp E&P as §301 dividend, (4) remaining basis, (5) capital gain. AAA per Reg §1.1368-2 - adjusted by income/loss/distributions; can go negative from losses only, not distributions. §1368(e)(3) E&P-first election (bypass AAA). §1377(b) POST-TERMINATION TRANSITION PERIOD - day after termination through later of 1 year or final return due date; §1371(e) cash distributions from AAA retain S-corp treatment. §1374 BIG sting tax and §1375 excess passive income coordination.