Hello and welcome to the session. This is Professor Farhad. In this session, we will look at corporation formation transactions. So, what is a corporation formation transaction? We are looking at when the shareholders of a corporation contribute money or other assets to the corporation. In return, they receive common stock. To determine if this transaction is taxable, we need to know if it is considered a taxable event. If it is, we need to understand why. If it is not, we need to understand under what circumstances it is not taxable. The general rule is that if the shareholders who contributed to the corporation have control of 80 percent or more of the newly formed or existing corporation after the transfer, then there is no gain or loss. In simple terms, if I transfer an asset to the corporation and receive common stock in return, it is considered an exchange. If the asset being transferred is appreciated, there is generally no taxable gain if the transfer gives the shareholders control. Let's look at an example. Ron decides to incorporate his donut shop. He contributes cash, furniture, and a building with gains of $40,000 and $60,000 respectively. In return, Ron receives 100% ownership of the donut shop's common stock. Section 351 applies in this case because Ron contributed cash and other property and obtained control of the corporation. Therefore, there is no gain or loss. The purpose of this rule is to encourage people to form corporations. If Ron had to pay taxes on the $100,000 gain, he may not have incorporated. So, in general, there is no gain or loss on the transfer of property to a corporation in exchange for stocks, as long as the transferor is in control of the corporation immediately after the transfer. However, if boot property (property other than...