Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $55,000; land by Tony (basis of $35,000 and fair market value of $45,000) . Dove Corporation issues 200 shares of stock, 100 each to Sarah and Tony. Thus, each receives stock in Dove worth $50,000.
A) Section 351 cannot apply since Sarah should have received 110 shares instead of only 100.
B) As a result of the transfer, Tony recognizes a gain of $10,000.
C) Tony's basis in the stock of Dove Corporation is $50,000.
D) Section 351 may apply because stock need not be issued to Sarah and Tony in proportion to the value of the property transferred.
E) None of the above.
Correct Answer:
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