Three individuals form Skylark Corporation with the following contributions: Cliff, cash of $50,000 for 50 shares; Brad, land (fair market value of $20,000) for 20 shares; and Ron, cattle (fair market value of $9,000) for 9 shares and services (fair market value of $21,000) for 21 shares. Section 351 will not apply in this situation because the control requirement has not been satisfied.

Question

Quizplus · Accepted Answer

Section 351 of the Internal Revenue Code allows for tax-free transfer of property to a corporation in exchange for stock, as long as certain requirements are met, including the control requirement. In this case, the contributions of Cliff, Brad, and Ron do not satisfy the control requirement, as they do not collectively own 80% or more of the corporation's stock. Therefore, Section 351 will not apply, and the transfer of property will not be tax-free.

Three Individuals Form Skylark Corporation with the Following Contributions: Cliff