Chapter 23: Entity Formation and Liquidation Planning

This chapter covers planning decisions that arise when entities are formed, restructured, or liquidated. The exam focus is on how different transaction forms shift recognition, basis, and owner-level versus entity-level tax consequences.

In This Chapter

• Contributions of Property, Stock-for-Property Exchanges explains the foundational formation rules and their exceptions.
• Corporate Liquidations vs. Sales of Shares compares two common exit paths and their tax consequences.
• Partnership Liquidations and Mergers covers partnership restructuring and termination issues.
• Comparison of Tax Implications Across Different Entities ties the transaction rules together for entity-choice analysis.

How to Use This Chapter

• Read this chapter when entity-tax rules are clear in isolation but hard to compare in planning questions.
• Focus on recognition, basis carryover or step-up effects, and who bears the tax cost.
• Return here when REG questions ask for the most tax-efficient formation or exit structure.

In this section

• Contributions of Property, Stock-for-Property Exchanges
  In-depth analysis of Section 351 transactions, corporate control requirements, and boot considerations for tax-deferred property contributions to corporations.
• Corporate Liquidations vs. Sales of Shares
  Explore the tax implications, gain or loss recognition, and strategic planning considerations for corporate liquidations versus the sale of shares, highlighting the perspectives of both corporations and shareholders.
• Partnership Liquidations and Mergers
  Explore comprehensive strategies and tax implications for complete and partial partnership liquidations, including built-in gain calculations and merger considerations.
• Comparison of Tax Implications Across Different Entities
  Explore how tax outcomes differ for C corporations, S corporations, and partnerships in identical transactions, including formation, operations, distributions, and liquidation.