F and G formed a corporation on March 1 this year.F transferred equipment worth $40,000 (basis $15,000) in exchange for 40 shares of stock, and performed services worth $10,000 in exchange for 10 shares of stock.In exchange for 50 shares of stock, G contributed land worth $70,000 (basis $9,000) subject to a mortgage of $20,000, which the corporation assumed.What amount of gross income must F recognize due to the incorporation transaction?

Question

Quizplus · Accepted Answer

F must recognize $10,000 of gross income for the services rendered in exchange for 10 shares of stock. The transfer of property (equipment) for stock is not a taxable event under Section 351 of the Internal Revenue Code, provided certain conditions are met, but compensation for services (like the $10,000 worth of services) is taxable as ordinary income.

F and G Formed a Corporation on March 1 This