Just want to be sure, a corp. issues stock. This is not taxable to the stockholder until the stock is sold or dividends are paid depending upon basis for sell. Correct?
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Stock Issue
Not necessarily.
Issue of stock can sometimes be in exchange for assets with substantial debt in excess of basis, where there's taxable income upon the exchange to the shareholder.
If no indebted assets are involved, and it's only for exchange of cash for stock - then no present taxable transaction.Uncle Sam, CPA, EA. ARA, NTPI Fellow -
Services
I think you could have income if stock is received for services rendered, as opposed to cash contributed, to the corporation. Facts & circumstances.Comment
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Gift?
Gift of mom's stock to kids? Stock from corporation to kids as compensation for services? Kids bought stock from corporation? Or, from mom? Facts & circumstances.Comment
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If it were newly-issued stock intended to be treated as compensation, there probably would have to be something in the corporate minutes, a resolution, approval by BOD's, etc, W-2's issued and so forth. If this is old stock which Mom had in her name, she could gift/transfer it to whomever. But this would result in a change of ownership percentage, would it not? Is she trying to pass control to others?Comment
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Gift Tax Return
Mom may need to file a gift tax return depending on the valuation of the stock (if she's giving stock she owns in the corporation) and the price the kids pay, if any, if not FMV.Comment
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How much
is the business worth??? Minority discounts - may make gift tax returns not necessary. If the business is worth a bunch you have a gift.Comment
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The stock FMV is not determinable, business in a loss right now. Thinking stock as compensation for expertise (they do get regular and reasonable paychecks and pay taxes on that) and value not determinable so would be taxed if the corp pays dividends in the future or if the stock is sold? No tax now right?Comment
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Well, you have not clarified where this stock is coming from. I am going to assume it is 100% original-issue stock currently in the Mom's name. If she gifts/transfers it to them, it is not compensation and not taxed now. They assume her basis, and gain/loss is realized when sold. She would have to retain at least 51% of the stock to retain a majority interest in the business. I am also going to assume there is not an Estate tax issue (for purposes of transfer of assets within 3 years.) Depending on how much stock is transferred, they may obtain a large voting interest in the business and be able to control operations, nominations to BOD, etc. (For instance, 2 kids, splitting stock so everyone has 33 1/3%.) If business is not profitable, then value is based on its assets, including any possible goodwill. In your OP, you said "corp issues stock." If corp issues stock to kids, then it would be treated as compensation and taxed at ord income rates, IMO.Comment
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Sorry for not giving very good info. on that! Thanks for all of the help everyone, it guided my research and helped me to find the answer I needed!!Comment
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