Question

7) a) Jeremy exchanges equipment with a fair market value of $75,000 and a basis of...

7) a) Jeremy exchanges equipment with a fair market value of $75,000 and a basis of $15,000 for 85% of the stock of JJJ Corporation. Does this transaction meet the non recognition provisions of IRC Sec 351?

a) Yes

b) No

C) If yes, explain why OR if no, explain why not.

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Answer #1
  • Under Section 351, no realized gain or loss is recognized when a property is transferred to a corporation in exchange of common stock and preferred stock and after that exchange, the transferor must be in control of the corporation.
  • Jeremy exchanges equipment with a fair market value of $75,000 for 85% of the stock of JJJ Corporation.
  • After the exchange, Jeremy holds 85% of the stock of JJ Corporation, hence Jeremy is in control of the corporation.
  • Therefore, this transaction meet the non recognition provisions of IRC Sec 351.

Answer is Yes.

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