Two rulings cover treatment of LIFO on incorporation and subsidiary transfers

Article Abstract:

A new firm which elects LIFO may not consider goods taken immediately after incorporation as opening inventory, as stipulated in Rev. Rul. 85-172, IRB 1985-43, 7. In another decision affecting the use of LIFO, Rev. Rul. 85-176, IRB 1985-43, 8, when a company uses the dollar-value LIFO method and transfers part of the inventory to a unit in a tax-free Section 351 transaction, inventories should be calculated on a pro rata division of the base year and later increments. The LIFO method used in valuing inventory is based on goods present at the close of the taxable year; inventory valued at its cost; and the cost of the first-year inventory, calculated using the average cost technique.

Finance, taxation, & monetary policy, Cases, Valuation, Assets (Accounting)

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How to ensure ordinary loss treatment for stock in a small business corporation

Article Abstract:

Under Section 1244 of the Internal Revenue Code, losses incurred on the sales of certain stock issued by businesses can be treated as ordinary operating losses, rather than capital losses, for tax purposes. The businesses much meet certain criteria as to size of operation, amounts of capital and paid-in surplus. The criteria for the stock and the corporation are different for stock issuances before and after November 7, 1978, and both sets of regulations are explained. The regulations are designed to encourage new venture capital investments in small businesses prior to the businesses' becoming profitable.

Analysis, Small business, Loss deductions

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When will gain be recognized on an otherwise tax-free incorporation?

Article Abstract:

Gains may be recognized on transfers of property to a corporation when liabilities are transferred to the corporation, or when short-term notes are received from the corporation. Gain is recognized to the extent that property other than stock is received for the transferred assets. The definition of what constitutes a security and the rules for transferring liabilities are discussed.

Laws, regulations and rules, Tax accounting, Property acquisition

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