So far, we've discussed capitalizing a corporation by making capital contributions

So far, we've discussed capitalizing a corporation by making capital contributions

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So far, we've discussed capitalizing a corporation by making capital contributions to the corporation—in other words, shareholders contributing money or other property to the corporation in exchange for stock in the corporation. However, that's not the only way to capitalize a corporation. Another way is to capitalize it with debt by borrowing money from banks or other lenders (where the banks or other lenders are not necessarily direct owners of the corporation). What are the costs and benefits of pursuing this approach compared to the traditional method of capitalizing a corporation? Which do you think is better? Why?

As we've learned, Section 351—much like the like-kind exchange rules under Section 1031—often allows the gain that would otherwise be recognized in a corporate formation transaction to be deferred. How do we store up that gain for future recognition? Is it much the same thing that we do under the like-kind exchange rules? How do we calculate it? How does the corporation calculate the basis in the property that it receives in a Section 351 transaction?

We learned that dividends from a corporation constitute taxable income. Are all distributions from a corporation taxed? What types of distributions are not taxed? Why?

Relatively recent revisions to the Code have modified the tax treatment of dividends. Put your Internet research skills to use and tell me about these changes and their consequences. In particular, tell me (1) what dividends are, as defined by the Code; (2) what the recent changes effectively do (and how it was different from the prior approach to the taxation of dividends); and (3) what the changes sought to achieve (in other words, why was the change made?).

 

Only need about 190-250 word response to each question


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