Internal Revenue Code Section 351 permits shareholders of a corporation to defer recognition of a gain or loss on the transfer of assets to the corporation. The transfer of property may be made when a new corporation is formed or may reflect additional capital contributions to an existing corporation. Without Section 351, a sole proprietorship or a partnership would have difficulty adopting the corporate form of organization for legal and/or tax purposes because the transfer of appreciated property would constitute a taxable transaction in a recognized gain. The deferral of gain or loss under Section 351 can be justified because the assets have merely 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. Question 14-20
According to Publication 538:
S Corporations, all Partnerships, Limited Liability Companies/Partnerships are required to use a calendar year. These pass-through entities can make an election to file on a fiscal year if they meet certain requirements. In almost cases, these entities are on a calendar year basis. C Corporations can pick up any month end for their tax year. Question 14-22
Corporations can claim capital losses only against capital gains. In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. A capital loss is carried to other years in the following order. 3 years prior to the loss year.
2 years prior to the loss year.
1 year prior to the loss year.
Disallowed capital losses can be carried back 3 years and forward 5 years. For individuals capital losses are treated as deduction for a loss on dispositions of stock; gains on sale remain capital gains. Lastly, Code Sec. 1202 allows non-corporate taxpayers to exclude 50...
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