On January 1, 2022 Tommy (“T”) and Ronnie (“R”) formed Phillee Corporation (“P Corp”), a company devoted to making products for giveaways at Phillies baseball games.

T transfers inventory (basis of $60,000 and fair market value of $220,000) for 50% of the stock in Phillee Corp.

R also gets 50% of the P Corp stock when he does two things. Thing 1, R transfers production machinery (which a basis of $100,000 and a fair market value of $170,000).

Thing 2, R also wants to get paid for the services he supplied in helping set up the company and he will serve as GM of P Corp for the first 6 months. He figures that these services are worth $50,000, and part of the P Corp stock will cover these items.

1. What are the tax consequences to T – does he recognize any gain on the transfer of inventory for stock? What is his basis in the P Corp stock?

2. What are the tax consequences to R – does he recognize any gain, or income, when he receives the P Corp stock? What is his basis in the P Corp stock?

3. What are the consequences to P Corp? Does P Corp recognize gain when it receives the inventory and production machinery? What basis does it have in the inventory and production machinery received? Does P Corp have any other tax deduction(s) as a consequence of this deal?

Answer rating: 100% (QA)

1 According to Australian taxation law there will be no tax consequences for the company transferrin... View the full answer