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

When assets are transferred to a corporation in exchange for stock under § 351, no gain or loss is recognized by the transferor(s) as long as certain requirements are met. In this case, Jane contributes property with a fair market value of $40,000 and a basis of $24,000, and Walt contributes property with a fair market value of $130,000 and a basis of $30,000. The total fair market value of the assets transferred is $170,000, which equals the total value of the stock issued. Since the transferors received stock equal to the value of their contributions and no gain or loss was recognized, neither Jane nor Walt has to recognize any income. Therefore, choice B is the correct option.

Four Individuals Form Chickadee Corporation Under § 351