Hazel transferred the following assets to Starling Corporation.

In exchange,Hazel received 50% of Starling Corporation's only class of stock outstanding.The stock has no established value.However,all parties sincerely believe that the value of the stock Hazel received is the equivalent of the value of the assets she transferred.The only other shareholder,Rick,formed Starling Corporation five years ago.

Question

Hazel transferred the following assets to Starling Corporation.

In exchange,Hazel received 50% of Starling Corporation's only class of stock outstanding.The stock has no established value.However,all parties sincerely believe that the value of the stock Hazel received is the equivalent of the value of the assets she transferred.The only other shareholder,Rick,formed Starling Corporation five years ago.

Quizplus · Accepted Answer

This is a taxable exchange because Hazel did not meet the 80% control requirement of § 351.Thus,Starling Corporation will have a basis of $180,000 in the machinery and land; Hazel has a recognized loss of $12,000 on the machinery and a recognized gain of $36,000 on the land; and she has a basis of $300,000 in the Starling Corporation stock she receives.

Hazel Transferred the Following Assets to Starling Corporation