Sam, Polly, Carmen, and Jen form Silver Corporation with the following consideration.

Name Contributes Basis FMV #of shares Notes

Sam Inventory $30,000 $90,000 30

Polly Equipment $45,000 $99,000 30 (1)

Carmen Installment Note $15,000 $90,000 30 (2)

Jen Land $40,000 $30,000 10

Notes:

(1) Polly also receives $9,000 cash.
(2) Carmen received the note in exchange for land with a $15,000 basis that she sold last year. The note is payable over a six year period beginning in two years, at $1,450 per month including interest.

Questions:

1. Does IRC § 351 apply to this exchange. If so, why?

2. What are the tax consequences (gain or loss realized, gain or loss recognized, basis and holding period in the stock received) to each of the transferors? Note: as to Carmen, see IRC § 453B(a); Reg. § 1.453–9(c)(2); Prop. Reg. § 1.453B–1(c).

3. What are the tax consequences (gain or loss recognized, basis, and holding period in each of the assets received) to the corporation?

4. Assume all the same facts except that Jen transfers two parcels of unimproved land (Parcel #1 and Parcel #2), each with a value of $15,000. Jen’s basis in Parcel #1 is $20,000 and her basis in Parcel #2 is $13,000. What is the tax result to Jen and the corporation?

5. There was a $60,000 gain inherent in the inventory transferred by Sam. If Silver Corporation later sells the inventory for $90,000, and Sam sells his stock for $90,000, how many times will that $60,000 gain be recognized? Is there any justification for that result?

Answer rating: 100% (QA)

a IRC 351 states the following No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchan... View the full answer