Sara and Jane form Wren Corporation. Sara transfers property, basis of $25,000 a

Question

Sara and Jane form Wren Corporation. Sara transfers property, basis of $25,000 and value of $200,000,
for 50 shares in Wren Corporation. Jane transfers property, basis of $10,000 and value of $185,000, and
agrees to serve as manager of Wren for one year; in return, Jane receives 50 shares in Wren. The value
of Jane's services to Wren is $15,000.

a. What gain or income do Sara and Jane recognize on the exchanged?




b. What is Wren Corporation's basis in the property transferred by Sara and Jane? How does
Wren treat the value of the services Jane renders?

Explanation / Answer

a. Sara does not recognize gain on the transfer. Jane has income of $15,000, the vaue of the services. b. Wren has a basis of $25,000 in the property it acquires from Sara and a basis of $10,000 in the property it acquires from Jane. It has a $15,000 business deduction under section 162 for the value of Jane's services.

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