I funded the corporation, then received extra shares for my work. Are both amounts capital contributions?

Cash invested in a corporation and shares awarded for services are separate tax events. A cash contribution may increase stock basis, while compensatory shares can create income under Section 83 based on value and restrictions. Combining the transactions in one board resolution does not erase the service component.

A specific business-owner situation

A founder invests $50,000 and receives additional equity for a year of unpaid management work. The full share issuance cannot automatically be treated as purchased solely with the cash.

Illustrative example, not a client result.

What to establish before filing

1. Allocate shares to cash and services.
2. Value the compensatory interest.
3. Review vesting timing and any relevant election deadline.

Which fact changes the answer?

Shares acquired at fair value for cash differ from value transferred as compensation. Restricted shares introduce additional timing questions.

A mistake to avoid

Do not treat unpaid labor as tax basis equal to an invented hourly charge.

Records that support the decision

• Subscription and service agreements.
• Board resolutions.
• Valuation and payroll records.

The decision to document

Document the consideration for each issuance and coordinate corporate compensation reporting with the founder's stock basis.

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Related questions

• Our books show no retained earnings. Does that mean a C-corp distribution cannot be a dividend?
• Our books classify redeemable preferred shares as a liability. Can we deduct the preferred payments as interest?

Sources and editorial context

• IRS Publication 542: corporations

General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.