Brad, Scott, and Jake each contribute property to form BSJ Corporation. Brad con

Question

Brad, Scott, and Jake each contribute property to form BSJ Corporation. Brad contributes a building with a fair market value of $450,000 and basis of $100,000 and receives 45% of the stock of BSJ. Scott contributes $100,000 cash and equipment with a fair market value and tax basis of $350,000, receiving 45% of the stock of BSJ. Jake contributes a collection of vintage automobiles and a fair market value of $150,000 and tax basis of $130,000 in exchange for 10% of the stock of BSJ and $50,000 cash.

Does this corporate formation qualify for tax-deferred treatment under Sec 351? Why?

Do Brad, Scott, or Jake recognize any income or gain on the formation?

What tax basis will Brad, Scott, and Jake take in their respective stock?

Explanation / Answer

No, there will be no tax deferred treatment under sec 351 because there is no shareholder holding more than 80% of the shares Yes Brad shall recognize income of $ 350000 (difference between market value and tax basis value) Brad and Scott will take $ 450000 and Jake will take $ 180000

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