Hunter and Warren form Tan Corporation. Hunter transfers equipment (basis of $210,000 and fair market value of $180,000) while Warren transfers land (basis of $15,000 and fair market value of $150,000) and $30,000 of cash. Each receives 50% of Tan's stock. As a result of these transfers:
A) Hunter has a recognized loss of $30,000, and Warren has a recognized gain of $135,000.
B) Neither Hunter nor Warren has any recognized gain or loss.
C) Hunter has no recognized loss, but Warren has a recognized gain of $30,000.
D) Tan Corporation will have a basis in the land of $45,000.
E) None of these.

Question

Quizplus · Accepted Answer

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 they own at least 80% of the stock) of the corporation. Both Hunter and Warren transferred property (equipment, land, and cash) to Tan Corporation solely in exchange for its stock and together they control the corporation, so neither recognizes any gain or loss on the transfer.

Hunter and Warren Form Tan Corporation