Four individuals form Chickadee Corporation under § 351. Two of these individuals, Jane and Walt, made the following contributions: $\begin{array}{lrr}
&&\text { Fair Market }\
&\text { Adjusted Basis }&\text {Value }\
\text { From Jane- } & \
\text { Cash } & \$ 360,000 & \$ 360,000\
\text { Patent } &-0- & 40,000 \
\text { From Walt- } & & \
\text { Equipment (depreciation claimed of } \$ 100,000) & 240,000 & 370,000
\end{array}$
Both Jane and Walt receive stock in Chickadee Corporation equal to the value of their investments.

Question

Four individuals form Chickadee Corporation under § 351. Two of these individuals, Jane and Walt, made the following contributions: $\begin{array}{lrr}
&&\text { Fair Market }\
&\text { Adjusted Basis }&\text {Value }\
\text { From Jane- } & \
\text { Cash } &   \$ 360,000 & \$ 360,000\
\text { Patent } &-0- & 40,000 \
\text { From Walt- } & & \
\text { Equipment (depreciation claimed of } \$ 100,000) & 240,000 & 370,000
\end{array}$
 Both Jane and Walt receive stock in Chickadee Corporation equal to the value of their investments.

Quizplus · Accepted Answer

According to § 351, no gain or loss is recognized if 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. Jane and Walt are transferring property to Chickadee Corporation solely in exchange for stock, and they will be in control of the corporation since there are only four individuals forming the corporation. Therefore, neither Jane nor Walt recognize income.

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