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I agree that book value is tax basis, but disagree with using book value for stock value recorded on the corporation books as it is a standard accounting method to record the stock value at FMV. Most of your web research only talks about tax basis and therefore does not address the recording on the corporate books. FMV booking is especially needed where you have two 50-50 owners when one shareholder contributes cash and the other contributes property of equal value. Here is a quote on how one accounting textbook states for recording stock value on the corporation books: >>----- McGraw-Hill Noncash Acquisitions Companies sometimes acquire assets without paying cash but instead by issuing debt or equity securities, receiving donated assets, or exchanging other assets. The controlling principle in each of these situations is that in any noncash transaction (not just those dealing with property, plant, and equipment and intangible assets), the components of the transaction are recorded at their fair values. The first indicator of fair value is the fair value of the assets, debt, or equity securities given. Sometimes the fair value of the assets received is used when their fair value is more clearly evident than the fair value of the assets given. <<

I agree that book value is tax basis, but disagree with using book value for stock value recorded on the corporation books as it is a standard accounting method to record the stock value at FMV. Most of your web research only talks about tax basis and therefore does not address the recording on the corporate books. FMV booking is especially needed where you have two 50-50 owners when one shareholder contributes cash and the other contributes property of equal value. Here is a quote on how one accounting textbook states for recording stock value on the corporation books: >>----- McGraw-Hill Noncash Acquisitions Companies sometimes acquire assets without paying cash but instead by issuing debt or equity securities, receiving donated assets, or exchanging other assets. The controlling principle in each of these situations is that in any noncash transaction (not just those dealing with property, plant, and equipment and intangible assets), the components of the transaction are recorded at their fair values. The first indicator of fair value is the fair value of the assets, debt, or equity securities given. Sometimes the fair value of the assets received is used when their fair value is more clearly evident than the fair value of the assets given. <<

state that the intent was to be an S corp but there was confusion between cpa and attorney with each thinking the other was preparing the election. This usually works.

Thanks, KC, for this timely update. Some clients are contemplating an LLC with mother and daughter to buy foreclosures, rehab and sell or rent if a down market. Daughter's spouse is in real estate so will serve as agent and handy man. I need to revisit the relationship issue and lots more but this raises more issues. It seems to me the spouse will likely be spending more time on this than either the daughter (university professor) or mother (out of state). And how this matters whether an LLC or just individuals. My brain already hurts...

The "anti-churn" rules do NOT allow you to create a new/higher tax basis from a sale of assets to a related entity. You must have been doing it wrong for 10 years if you have been depreciating a new basis (other than a carryover tax basis). Also a "sale" would mean you have to recognize a tax on gain at FMV as the transaction would not qualify as a tax free exchange for stock.