Problem $4-30($LO$.1,2)$

Dan Knight and Patricia Chen, who are good friends, form Crane Corporation. Dan transfers land $($worth $$200,000,$ basis of $$60,000)$ for $50\%$ of the stock in Crane. Patricia transfers machinery $($worth $$150,000,$ adjusted basis of $$30,000)$ and provides services worth $$50,000$ for $50\%$ of the stock.

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a$.$ Will the transfers qualify under $351?$

Yes

$,$ because

all

of Patricia's stock counts in determining control since the property she transferred has

more

than a nominal value in comparison to the value of the services rendered.

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Nonrecognition treatment for the property transferors may be lost if "too much" stock is transferred to persons who did not contribute property.

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b$.$ What are the tax consequences to