Frodo, Sam, Merry, and Pippin form The Shire, Inc. with the following contributions:

Shareholder	Contribution	Adjusted Basis	FMV	Debt assumed by Corporation
Frodo*	Land	$950	$1,000	$200
Sam	Cash	$700	$700	$0
Merry	Security Services	$750	$750	$0
Pippin	Horse (considered property)	$300	$2,500	$500

*In addition to stock, Frodo also receives $300 in cash.

What amount of control exists for purposes of §351?

1. What are the tax implications for each shareholder based on the above transaction (i.e., the amount of gain and/or income each shareholder recognizes)?
2. How much gain/(loss) does The Shire, Inc. recognize on the formation?
3. What is each shareholder’s basis in their stock after formation?
4. What is The Shire, Inc.’s basis in each item of property after formation?         

Answer rating: 100% (QA)

What amount of control exists for purposes of 351 Sec 351 allows a taxfree incorporation transfer if certain requirements are met including that the p... View the full answer