Rose and Wayne form a new corporation. Rose contributes cash for 85% of the stock and Wayne contributes services for 15% of the stock. The tax effect is

Question

Quizplus · Accepted Answer

When a person contributes services to a corporation in exchange for stock, the FMV of the stock received is taxed as ordinary income. Therefore, Wayne must report the FMV of the stock received as ordinary income. Rose's contribution of cash does not result in any tax implications at the time of contribution.

Rose and Wayne Form a New Corporation