1. In which of the following independent situations is the Sec 351 control requi
ID: 2420888 • Letter: 1
Question
1. In which of the following independent situations is the Sec 351 control requirement met? Where it is not met, please tell me why?
a) Jane transfers property to Jet corporation for 75% of Jet corporation stock, and Susan provides services to jet Corporation for the remaining 25% of jet corporation stock.
b) Paul transfers property to Pride Corporation for 60% of Prude's stock, and Bob transfers property worth $15,000, and performed services worth $25,000 for the remaining 40% of Pride's stock
c) Herb and his wife CArolyn each have owned 50% of the 100 outstanding shares of Wykert Cororation since it was formed three years ago. In the current year, their daughter, Cindy, transfers property to Wykert Corporation for 50 newly issued shares of Wykert stock.
d) John and Pam develop a plan to form PJ Corporation on May 2 of this year. John transfers property worth $50,000 for 50 shares of PJ Corporation stock, as part of a single plan to incorporate, Pam transfers $50,000 cash for 50 shares of PJ Corporation stock on July 1.
Explanation / Answer
Sec 351-Transferred to corporation controlled by transferor says for the nonrecognition of gain or loss upon the transfer by one or more persons of property to a corporation solely in exchange for stock or securities in such corporation, if immediately after the exchange, such person or persons are in control of the corporation to which the property was transferred. o be in control of the transferee corporation, such person or persons must own immediately after the transfer stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of such corporation .
Stock or securities issued for services rendered or to be rendered to or for the benefit of the issuing corporation will not be treated as having been issued in return for property
a) Jane transfers property to Jet corporation for 75% of Jet corporation stock which is less than 80% criteria of control, and Susan provides services to jet Corporation for the remaining 25% of jet corporation stock, as services rendered is not treated as having been issued in return for property.So here criteria of nonrecognition of gain or loss is not met, so we will recognize gain or loss but in this case there is no gain or loss,
b) Paul transfers property to Pride Corporation for 60% of Prude's stock, and Bob transfers property worth $15,000, and performed services worth $25,000 for the remaining 40% of Pride's stock. Again 80% criteria not met and ervices rendered is not treated as having been issued in return for property So here criteria of nonrecognition of gain or loss is not met, so we will recognize gain or loss but in this case there is no gain or loss.
c) Herb and his wife CArolyn each have owned 50% of the 100 outstanding shares of Wykert Cororation since it was formed three years ago. In the current year, their daughter, Cindy, transfers property to Wykert Corporation for 50 newly issued shares of Wykert stock. Before their daughter it was 50% and after their daughter transferred property it is 33.33% each so 80% criteria not met so gain or loss will be recognized but in this cxase again no gain or loss.
4)
John and Pam develop a plan to form PJ Corporation on May 2 of this year. John transfers property worth $50,000 for 50 shares of PJ Corporation stock, as part of a single plan to incorporate, Pam transfers $50,000 cash for 50 shares of PJ Corporation stock on July 1. In John case on May 2 he has 100% ownership so section 351 crieterio met. But when Pam transfers the cash both becomes owner of 50% each so sec 351 criterio not met.
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