On January 3, 2022, Adam, Brian, Charlie and Dave decide to form Newco Corp. as a vehicle through which they intend to engage in a business.

Adam transfers machinery with a FMV of $115,000 and an adjusted basis in his hands of $72,000 to the corporation in exchange for 100 shares of voting common stock. The machinery was encumbered by a $75,000 liability at the time of the transfer.

Brian contributes a truck with a FMV of $40,000 and an adjusted basis of $49,000 in exchange for 100 shares of voting common stock.

Charlie transfers land with a FMV equal to $287,000, which land is encumbered by a $247,000 liability and has an adjusted basis in his hands of $212,000, in exchange for 100 shares of voting common stock.

Dave receives 60 shares of stock in exchange for his agreement to render services for XYZ Corp valued at $23,000 and his contribution of $1,000 of cash.

a) Does the incorporation of XYZ Corp qualify for treatment as a transfer to a controlled corporation pursuant to section 351?

Regardless of your answer to part a), assume that the incorporation satisfies the requirement of section 351 and will be treated as a transfer to a controlled corporation.

b) What is the amount of the realized gain or loss for Adam, Brian and Charlie?

c) What is the amount of gain or loss to be recognized by Adam, Brian and Charlie?

d) What is the amount and character of any income to be recognized by Dave?

e) What is the adjusted basis of the stock received from XYZ Corp. in the hands of Adam, Brian, Charlie and Dave?

f) What is XYZ Corp's adjusted basis in the machinery, the truck and the land it received from its shareholders?

Answer rating: 100% (QA)

a Yes the incorporation of XYZ Corp qualifies for treatment under section 351 Section 351 applies to ... View the full answer