Rachel owns 100% of the stock of Cardinal Corporation. In the current year Rachel transfers an installment obligation, tax basis of $180,000 and fair market value of $350,000, for additional stock in Cardinal worth $350,000.
A) Rachel has a taxable gain of $180,000.
B) Rachel has a taxable gain of $170,000.
C) Rachel recognizes no gain on the transfer.
D) Rachel has a basis of $350,000 in the additional stock she received in Cardinal Corporation.
E) None of these.

Question

Quizplus · Accepted Answer

Rachel recognizes no gain on the transfer because it is a contribution to a corporation in exchange for stock, which is generally a non-taxable event under IRC Section 351, provided she controls the corporation immediately after the exchange.

Rachel Owns 100% of the Stock of Cardinal Corporation