Ann, Irene, and Bob incorporate their respective businesses and form Dove Corporation. Ann exchanges her property (basis of $100,000 and fair market value of $400,000) for 200 shares in Dove Corporation on March 1, 2009. Irene exchanges her property (basis of $140,000 and fair market value of $600,000) for 300 shares in Dove Corporation on April 11, 2009. Bob transfers his property (basis of $250,000 and fair market value of $1,000,000) for 500 shares in Dove Corporation on May 15, 2011. Bob's transfer is not part of a prearranged plan with Ann and Irene to incorporate their businesses. What gain, if any, will Bob recognize on the transfer?

Question

Quizplus · Accepted Answer

Bob will recognize a gain of $750,000 because his transfer does not qualify for non-recognition under IRC Section 351, as it was not part of a prearranged plan with Ann and Irene. The gain is the difference between the fair market value of the property transferred ($1,000,000) and its basis ($250,000).

Ann, Irene, and Bob Incorporate Their Respective Businesses and Form