Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $65,000; land by Tony (basis of $25,000 and fair market value of $35,000). Dove Corporation issues 400 shares of stock, 200 each to Sarah and Tony. Thus, each receives stock in Dove worth $50,000.
A) Section 351 cannot apply since Sarah should have received 260 shares instead of only 200.
B) Section 351 may apply because stock need not be issued to Sarah and Tony in proportion to the value of the property transferred.
C) Tony's basis in the stock of Dove Corporation is $50,000.
D) As a result of the transfer, Tony recognizes a gain of $10,000.
E) None of these.

Question

Quizplus · Accepted Answer

Section 351 can apply because it allows for non-recognition of gain or loss when property is transferred to a corporation by one or more persons solely in exchange for stock, and immediately after the exchange, such person or persons are in control of the corporation. The stock does not need to be issued in proportion to the value of the property transferred.

Sarah and Tony (Mother and Son) Form Dove Corporation with the Following