T Corporation was formed 10 years ago by J, K, and L.These three shareholders currently own all of the corporation's stock as follows: J owns 500 shares, K owns 100 shares, and L owns 100 shares.This year J contributed property worth $90,000 (basis $20,000) to the corporation in exchange for an additional 300 shares.J will

Question

Quizplus · Accepted Answer

J will recognize no gain because he has sufficient stock ownership after the exchange. Under Section 351 of the Internal Revenue Code, no gain or loss is recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation, and immediately after the exchange, such person or persons are in control (meaning ownership of at least 80% of the stock) of the corporation. Since J, K, and L together own 100% of the corporation both before and after the exchange, and J's contribution of property for additional shares does not change this control structure, J recognizes no gain.

T Corporation Was Formed 10 Years Ago by J, K