Question

Currently, Barnes Corporation has four shareholders, shareholders J, K, L and M. Upon creation of the corporation, these shareholders made transfers of the following for their respective shares of stock:  On April 3, 2019, J transferred $18,000 cash for 1,500 shares of stock  On June 14, 2019, K and L both transferred property with adjusted tax bases of $31,000 and $42,000, respectively. The fair market value of each property was $30,000 and $48,000 respectively. K received 2,500 shares and L received 4,000 shares.  On January 19, 2020, M transferred property with an adjusted tax basis $30,000 and a fair value of $28,000 for 2,000 shares. None of the transfers occurred under a plan of organization. These are the only shareholders and transfers. Finally, the corporation has been authorized a total of 50,000 shares (meaning there can be future transfers). Form the above information, which of the following statements is TRUE?

a. There is no tax effect to Shareholder J.

b. Shareholder K has a realized loss of $1,000.

c. The April 3, 2018 transfer falls under Section 351.

d. All of the above statements are true.

Answer 1

C. The April 3, 2019 transfer falls under Section 351.

Explanation: As per US Code Section 351, No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368(c)) of the corporation. Hence, Option B is incorrect. And ofcourse, there will be tax effect to Shareholder J

Note: It is assume that Option C is misprint as April 3, 2018 instead of April 3, 2019. Because there is nodate of April 3, 2018