Four individuals form Chickadee Corporation under § 351.Two of these individuals, Jane and Walt, made the following contributions: 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:  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

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. In this case, Jane and Walt both transferred property to Chickadee Corporation solely in exchange for stock, and they both have control of the corporation as part of the four individuals forming it. Therefore, neither Jane nor Walt recognize income.

Four Individuals Form Chickadee Corporation Under § 351