Question

If a shareholder contributes property to a corporation, but receives nothing in exchange for the property, what are the tax consequences to the shareholder and the corporation?

Answer 1

The tax consequences to the shareholder and the corporation are as follows:

When a shareholder makes a contribution with nothing received in exchange it is simply contribution to the capital of the corporation.Neither the shareholder nor the corporation recognises gain or loss on the transfer.The corporation simply takes the basis in the property that the shareholder had and the shareholder increases the basis of his or her existing stock equal to the basis of the property transferred.

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