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Tag Archive for stock received

What is “Boot”?

Tax Treatment of Liabilities Assumed By A Corporation IRC 357

According to IRC 357(a) if property transferred to a corporation in an IRC 351 nonrecognition transaction is subject to a liability, the assumption of that liability by the corporation typically is not treated as taxable “boot” for purposes of determining the amount of any taxable gain on the transaction.

For example, if you transfer computer programs and peripheral devices to a software development corporation in exchange for stock in that corporation with a fair market value of $2,500,000 and immediately after the exchange you control the corporation in question, if the property transferred to the corporation has a fair market value of $4,000,000 and is subject to a development loan of $1,500,000 when the corporation assumes the development loan the transfer of property to the corporation qualifies for Code Sec. 351 nonrecognition treatment. Generally speaking you should not recognize any gain on the Corporation’s assumption of the liability.

The amount of the liability generally is treated as “boot” predominately for determining your basis in the stock received in the exchange. What this means is that if you transfer property to a corporation in exchange for its stock and also receive money or other property (aka “boot”) in addition to the stock, the transaction may still qualify for Read more