Kirby and Helen form Red Corporation.Kirby transfers property,basis of $20,000 and value of $300,000,for 100 shares in Red Corporation.Helen transfers property,basis of $40,000 and value of $280,000,and provides legal services in organizing the corporation.The value of her services is $20,000.In return Helen receives 100 shares in Red Corporation.With respect to the transfers:

Question

Quizplus · Accepted Answer

Kirby will not recognize gain on the transfer.Helen will have income of $20,000,the value of the services she rendered to the corporation.Red Corporation will have a basis of $40,000 in the property it acquired from Helen.Red Corporation will not have a business deduction of $20,000.Instead,it must capitalize the $20,000 as an organizational expense.

Kirby and Helen Form Red Corporation