Four individuals form Chickadee Corporation under § 351.Two of these individuals, Jane and Walt, made the following contributions: $\begin{array}{lrr}
&&\text { Fair Market }\
& \underline{\text {Adjusted Basis}}&
\underline{\text {Value}}\
\text { From Jane- }\
\text { Cash } & \$ 360,000 & \$ 360,000 \
\text { Patent } & -0- & 40,000 \\
\text { From Walt- } & & \
\text { Equipment (depreciation claimed of } \$ 100,000) & 240,000 & 370,000
\end{array}$ Both Jane and Walt receive stock in Chickadee Corporation equal to the value of their investments.
A)Jane must recognize income of $40,000; Walt has no income.
B)Neither Jane nor Walt recognize income.
C)Walt must recognize income of $130,000; Jane has no income.
D)Walt must recognize income of $100,000; Jane has no income.
E)None of the above.

Question

Four individuals form Chickadee Corporation under § 351.Two of these individuals, Jane and Walt, made the following contributions: $\begin{array}{lrr}
&&\text { Fair Market }\
& \underline{\text {Adjusted Basis}}&
 \underline{\text {Value}}\
\text { From Jane- }\
\text { Cash } & \$ 360,000 & \$ 360,000 \
\text { Patent } & -0- & 40,000 \\
\text { From Walt- } & & \
\text { Equipment (depreciation claimed of } \$ 100,000) & 240,000 & 370,000
\end{array}$ Both Jane and Walt receive stock in Chickadee Corporation equal to the value of their investments.
A)Jane must recognize income of $40,000; Walt has no income.
B)Neither Jane nor Walt recognize income.
C)Walt must recognize income of $130,000; Jane has no income.
D)Walt must recognize income of $100,000; Jane has no income.
E)None of the above.

Quizplus · Accepted Answer

Under § 351, no gain or loss is recognized when property is transferred to a corporation by one or more persons solely in exchange for stock in the corporation and immediately after the exchange, such person or persons are in control of the corporation. In this scenario, both Jane and Walt transferred property to Chickadee Corporation solely in exchange for stock in the corporation, and immediately after the exchange, they are in control of the corporation along with the other two individuals. Therefore, no gain or loss is recognized by either Jane or Walt.

Four Individuals Form Chickadee Corporation Under § 351 Both Jane and Walt Receive Stock in Chickadee Corporation Equal