Samuel and Zachary formed S & Z Accounting & Tax Services, Inc. on 1/1/16. Each

Question

Samuel and Zachary formed S & Z Accounting & Tax Services, Inc. on 1/1/16. Each shareholder contributed the following in exchange for his corporate stock:

Shareholder/Item Asset (Basis) Asset (FMV) Shares Received

Samuel – property (acquired 5 yrs. ago) $25,000 $40,000 90 shares

Zachary – services 0 20,000 10 shares

$25,000 $60,000 100 shares

a) Does Sec. 351 apply? Explain.

b) How much gain or loss, if any, does Samuel realize?

c) How much gain or loss, if any, must Samuel recognize?

d) What is Samuel’s basis in his stock?

e) When does Samuel’s holding period begin for the stock he received?

f) What is the corporation’s basis in the property received from Samuel?

g) Does Zachary have to recognize any income? If so, how much and what is its nature (capital gain or ordinary income)? What is his basis and holding period in his stock?

Explanation / Answer

??Samuel and Zachary formed an company that is named as S & Z Accounting & Tax Services,on 1/1/2016.each share holder participated in exchange of his stock. Asset (Basis) Asset (FMV) Shares Received Samuel-property (acquired 5years ago) 25,000 40,000 90 Zachary-services 0 20,000 10 TOTAL 25,000 60,000 100 Yes,Sec 351 allows a tax-free incorporation. As,the property like place,company,industry and machinery or any other objects or things that can be transformed from one or more persons to a corporation in exchange for the stock. Samules realized the gain and the gain is 40,000. Samules recognized the gain and the gain is 15,000. Stock basis of samules is 90. From the samules,the corporation's basis received the property that is 25,000. Yes,zachary recognized 20,000 as income and it is 10 of his basis in his stock.

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