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Transfer of Property to Corporation in Exchange for Stock

Sam Rogers forms a corporation. Sam transfers to the corporation property having a basis to him of $15,000 and a fair market value of $27,000 for 900 shares of the $10 par stock of the corporation. A year later, Bill Morrison, who is not related to Sam, transfers property having a basis to him of $1,000 and a fair market value of $3,000 for 100 shares of the corporate stock. The corporation issued no other stock.

a. How much gain does Sam recognize on his exchange? What is the basis to Sam of his 900 shares?

b. How much gain does Bill recognize on his exchange? What is the basis to Bill of his 100 shares?

c. What gain or loss is recognized by the corporation when it issues its shares to Sam? What is the basis to the corporation of the property it received from Sam?

d. What is the gain or loss recognized by the corporation when it issues its shares to Bill? What is the basis to the corporation of the property it received from Bill?

Solution Preview

These transfers are governed by Section 351 of the Code.

Question A
After Sam transferred the property to the corporation, he immediately gained control of the corporation. Thus Sam does not recognize any gain on this exchange.

Hence Sam's basis of his 900 ...

Solution Summary

Transfer of property to corporation in exchange for Stock is examined.

$2.19