Problem $4-28($LO$.1,7)$

Luciana, Jon, and Clyde incorporate their respective businesses and form Starling Corporation. On March $1$ of the current year, Luciana exchanges her property $($basis of $$50,000$ and fair market value of $$150,000)$ for $150$ shares in Starling Corporation. On April $15,$ Jon exchanges his property $($basis of $$70,000$ and fair market value of $$500,000)$ for $500$ shares in Starling. On May $10,$ Clyde transfers his property $($basis of $$90,000$ and fair market value of $$350,000)$ for $350$ shares in Starling.

a$.$ If the three exchanges are part of a pre$-$arranged plan, who will recognize a gain on the exchanges?

None of the parties $.$

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Section $351$ is mandatory if a transaction satisfies the provision's requirements. The three requirements for nonrecognition of gain or loss under $351$ are that $(1)$ property is transferred $(2)$ in exchange for stock and $(3)$ the property transferors are in control of the corporation after the exchange. Therefore, if recognition of gain or loss is desired, the taxpayer must plan to fail to meet at least one of these requirements.

b$.$ Now assume that Luciana and Jon exchanged their property for stock four years ago, while Clyde transfers his property for $350$ shares in the current year. Clyde's transfer is not part of a pre$-$arranged plan with Luciana and Jon to incorporate their businesses. What gain will Clyde recognize on the transfer?

Clyde will recognize a gain of $

X on the transfer.

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Incorrect

C$.$ Returning to the original facts, assume the property that Clyde contributes has a basis of $$490,000($instead of $$90,000).$ Why would it be better from a tax perspective for Clyde to wait to transfer his property rather than be a part of Luciana's and Jon's transfers?

To allow the recognition of a loss by Clyde $$