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What are the tax consequences?
I understand that under IRC 351(d)(1) that stock issued for services shall not be considered as issued in return for property; however, what are the tax consequences(gain or loss realized and recognized, basis and holding period) when a shareholder decides to contribute services in the amount of $25,000 for 25 shares of common stock?
3 Answers
- ◄|| G ||►Lv 69 years agoFavorite Answer
There are no consequences. The potential of red flag at the taxation department may alarm only if you deviate sharply from what may be the "norm". Let say you have an annual holding of $10 and request return of $2 each year. The next year your holding request goes to $12 which is normal, it it drops to let say $0 or maybe $1000000 then you are running a potential risk of red flag. (audit)
Source(s): G - Norman BLv 49 years ago
The personal services disqualify this as a 351 exchange. In essence the shareholder is being paid with stock instead of cash, taxed as ordinary income.
- troLv 79 years ago
if the stock is issued as payment for services, which it appears to be, it is taxable income
