Publication 542 |
2001 Tax Year |
Capital Contributions
This section explains the tax treatment of contributions from
shareholders and nonshareholders.
Paid-in capital.
Contributions to the capital of a corporation, whether or not by
shareholders, are paid-in capital. These contributions are not taxable
to the corporation.
Basis.
The basis of property contributed to capital by a shareholder is
the same in the corporation as the basis the shareholder had in the
property, increased by any gain the shareholder recognized on the
exchange.
The basis of property contributed to capital by a person other than
a shareholder is zero.
If a corporation receives a cash contribution from a person other
than a shareholder, the corporation must reduce the basis of any
property acquired with the contribution by the amount of the cash
received. The corporation has a 12-month period beginning on the day
it received the contribution to acquire the property. If the amount
contributed is more than the cost of the property acquired, then
reduce, but not below zero, the basis of the other properties held by
the corporation on the last day of the 12-month period in the
following order.
- Depreciable property.
- Amortizable property.
- Property subject to cost depletion but not to percentage
depletion.
- All other remaining properties.
Reduce the basis of property in each category to zero before going
on to the next category.
There may be more than one piece of property in each category. Base
the reduction of the basis of each property on the ratio of the basis
of each piece of property to the total bases of all property in that
category. If the corporation wishes to make this adjustment in some
other way, it must get IRS approval. The corporation files a request
for approval with its income tax return for the tax year in which it
receives the contribution.
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