Facts for 8 and 9. Bill owns 1000 share of stock in BBB Corporation. John would

Question

Facts for 8 and 9.

Bill owns 1000 share of stock in BBB Corporation. John would like to contribute property with an adjusted basis of $10,000 and a fair market value of $50,000 in exchange for stock in BBB. John will also provide services to BBB with a fair market value of $30,000. John will receive shares of stock from BBB. John would like the transfers to meet the requirements for nonrecognition under section 351. Read relevant provisions of IRC Section 351. Read Reg. Section 1. 351-1 (a)(2) Examples 2 and 3.

8. What amount of income, if any, must John recognize if the trnasaction meets the nonrecognition requirements of section 351?

9. What is the least number of shares that BBB must issue to John to accomplish his goal of nonrecognition? __________ shares. Why?

Explanation / Answer

8. John must not recognize any income if the requirements of Section 351 are met for non recognition.

John would only recognize Realized gain from the exchange which will be lower of Adjusted basis of the stock or Amount realized from the boot whichever is lower.

9. In order to meet the requirements of Section 351, BBB must issue 800 shares ( 1000 x 80%) to John as Section 351 provides that a transaction where property is transferred to one person or more solely in exchange of stock in such company and immediately pays for the exchange and transfer of shares.

Section 351 provides that as much shares should be transferred which give a controlling interest in the corporation as per Section 368 which says that 80% of the voting right should be held by the transferee

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.