Four individuals form Chickadee Corporation under § 351. Two of these individuals, Jane and Walt, made the following contributions: Both Jane and Walt receive stock in Chickadee Corporation equal to the value of their investments.

Question

Four individuals form Chickadee Corporation under § 351. Two of these individuals, Jane and Walt, made the following contributions:  Both Jane and Walt receive stock in Chickadee Corporation equal to the value of their investments.

Quizplus · Accepted Answer

In a § 351 transaction, no gain or loss is recognized by the individuals contributing property in exchange for stock if the property is transferred to a corporation in exchange for stock and immediately after the exchange, the transferors are in control of the corporation. Jane contributed property with a basis of $40,000 and received stock with a value of $40,000, so she recognizes no income. Walt contributed property with a basis of $130,000 and received stock with a value of $130,000, so he recognizes no income. The other two individuals' contributions are not relevant to the income recognition determination for Jane and Walt.

Four Individuals Form Chickadee Corporation Under § 351