C Corporation: C Corp Formation (Sec 351) & Basis
C Corporation: C Corp Formation (Sec 351) & Basis is a critical concept in EA Exam Part 2, Business Entities. This topic covers essential tax principles that frequently appear on the exam. Understanding c corp formation (sec 351) & basis is crucial for passing Part 2.
Quick answer
C corporation formation under Section 351 lets shareholders contribute property tax-free when they are in control immediately afterward. The EA exam tests the control test, the treatment of boot, and the resulting basis to both shareholder and corporation.
C Corp Formation (Sec 351) & Basis is tested on EA Exam Part 2 (Business Entities). Primary IRS reference: IRC §351.
About this EA exam topic
C corporation formation under Section 351 lets shareholders contribute property tax-free when they are in control immediately afterward. The EA exam tests the control test, the treatment of boot, and the resulting basis to both shareholder and corporation.
Expect questions where liabilities assumed or boot received trigger gain, and computations of the shareholder’s stock basis and the corporation’s basis in contributed property.
What you'll be tested on
- The Section 351 control requirement (80% test)
- Recognition of gain when boot or excess liabilities are present
- Shareholder stock basis after contribution
- Corporation’s carryover basis in contributed property
How to prepare
- Memorize the 80% control test and that services do not count as property.
- Track boot and assumed liabilities. They can trigger gain.
- Practice the shareholder-basis and corporate-basis formulas together.
Practice questions for C Corp Formation (Sec 351) & Basis
What this topic covers
C Corp Formation (Sec 351) & Basis appears in Part 2: Business Taxation within the Business Entities domain. VantageEA practice questions focus on how c corporation rules are applied in realistic EA exam fact patterns.
What candidates practice
Candidates practice identifying tested facts, choosing the best multiple-choice answer, and reviewing explanations tied to IRC §351, IRC §358, IRC §362, IRS Publication 542. This topic supports timed 100-question PSI-style mock tests and shorter topic review sessions.
Related practice-question themes include c-corp, formation, section-351, basis.
Topic overview
Official IRS sources
Related keywords
Frequently asked questions
Is Section 351 always tax-free?
Generally yes if the control test is met, but boot received or excess liabilities assumed can trigger recognized gain.
Which part?
Part 2 (Businesses), business entities.
Reference?
IRC §351 and IRS Publication 542.
Continue studying
More Business Entities topics from Part 2
C Corporation: Corporate Income Tax & Dividends
Business Entities
Partnership: Partner Basis & K-1 Allocation
Business Entities
Partnership: Partnership Distributions
Business Entities
Partnership: Partnership Formation & Contributions
Business Entities
S Corporation: S Corp Election & Termination
Business Entities
S Corporation: S Corp Income/Loss & Distributions
Business Entities
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