Matt and Sheila form Krupp Corporation. Matt contributes property with an FMV of $55,000 and a basis of $35,000. Sheila contributes property with an FMV of $75,000 and a basis of $40,000. Matt sells his stock to Paul shortly after the exchange. The transaction will
A)not qualify under Sec. 351.
B)qualify under Sec. 351 if Matt can show that the sale to Paul was not part of a prearranged plan.
C)qualify with respect to Sheila under Sec. 351 whether Matt qualifies or not.
D)qualify under Sec. 351 only if an advance ruling has been obtained.

Question

Quizplus · Accepted Answer

The contribution by Sheila qualifies under Sec. 351 even if Matt's contribution does not qualify. However, since Matt sold his stock shortly after the exchange, it could be seen as part of a prearranged plan to evade taxes. Thus, the transaction may still qualify under Sec. 351 if Matt can show that the sale to Paul was not part of a prearranged plan.

Matt and Sheila Form Krupp Corporation