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lauritta
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| Posted: 26 Mar 2012 at 17:00 | IP Logged
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Could you please help me to understand this problem? I got
confused.
"John wants to obtain an ownership interest in Company,
Inc. He performed computer repair services worth $2,000 in
exchange for a 2% stock interest."
1. I understand that the basis of his investment is $2000.
and It is taxable to John (as income), correct?
2. Is $2000 taxable to Company, Inc? Where does it go on
form 1120?
Thank you!
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musicamor04
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| Posted: 26 Mar 2012 at 22:05 | IP Logged
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Because John is performing services in exchange for an ownership interest in a corporation, the FMV of the services is taxable as ordinary income to John. The Corporation realizes no gain or loss on the transaction. As far as where to place this on the 1120; the $2000 is his beginning basis, so it would go on the page where ownership basis is located.
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lauritta
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| Posted: 26 Mar 2012 at 22:37 | IP Logged
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Thank you so much!
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nolifecpa
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| Posted: 27 Mar 2012 at 17:22 | IP Logged
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$2000 is not taxable to company inc but company inc gets a deduction equal to the FMV of services
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jakemia
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| Posted: 30 Mar 2012 at 02:26 | IP Logged
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I agree with nolifecpa that the FMV of the services rendered is a business expense for the corp. My tax textbook gave the same answer.
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Topic: Contribution of services
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