Corporate formation transactions are either taxable or tax-free events depending on whether the requirements of Sec. 351

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Corporate formation transactions are either taxable or tax-free events depending on whether the requirements of Sec. 351 are met. Debate the pros and cons of the following statement:

All corporate formations should be treated as taxable events. Teams of two to four persons should conduct the debate. A summary of items for the “pro” and “con” positions should be presented.

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Debate The following points are provided in favor or against the proposition that all corporate formation transactions should be treated as taxable events PRO 1 Corporate formations are exchange transactions and therefore should be taxable 2 The transfer is a change from direct ownership to indirect ownership and therefore should be taxable 3 Reduces the need for tax planning taxpayers will not have to restructure a transaction to be able to recognize gains and losses 4 Ease of administration x brings tax basis up to correct value No need to worry about carryover rules eg basis Sec 12451250 recapture holding periods 5 Eliminate difference between financial accounting and tax reporting of the transaction Typically financial accounting rules require booking the assets at their FMV 6 Eliminates a contingent tax liability payable in the future for the corporation 7 Government revenues will increase because gains are recognized CON 1 May prevent taxpayers from using the corporate form ...View the full answer

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