On January 1, 2011, Moses, Ethan, Christie and Rodney formed Butterfly, Inc., a

Question

On January 1, 2011, Moses, Ethan, Christie and Rodney formed Butterfly, Inc., a manufacturing company to be taxed as a Subchapter C corporation. Moses contributed (i) cash in the amount of $100,000, and (ii) equipment having a basis of $120,000 and fair market value of $125,000 in exchange for 225 common, voting shares of the corporation. Ethan contributed a building with a basis of $100,000 and fair market value of $125,000 in exchange for 125 common, voting shares of the corporation. Christie contributed $25,000 in cash in exchange for 25 commons, voting shares of the corporation. Rodney contributed a capital asset having a basis of $15,000 and fair market value of $25,000 in exchange for 25 common, voting shares of the corporation. It should be noted that Moses is the biological father of Ethan and the adoptive father of Christie. Rodney is unrelated to Moses, Ethan or Christie. What are the consequences to all parties ?

Explanation / Answer

Moses considered to be a primary holder for a Butterfly, Inc.

Else others were secondary share holders.

C corporation having double taxation problem, one is corporate income as profit , second received dividend should pay the tax with person tax return.

C corporation does not shown any restrication placed their ownership.

No deduction allowed on corporate losses.

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