Question

QUESTION 1

1. C contributes to Z, a newly formed corporation, property worth $400 with a basis of $300 in exchange for 100 shares. As a part of the same transaction, D (an employee of C) contributes to Z property worth $100 with a basis of $40 in exchange for 400 shares

   	a.	This is most likely not a good 351. C must recognize $100 of gain and D $50 of gain.
   	b.	This is not a good 351 because receipt of stock is disproportionate to the property contributed.
   	c.	This is not a good 351 transaction. C and D will recognize gain on the transfers to Z.
   	d.	This is a good 351 transaction. C must have also transferred property to D (an employee after the incorporation). Most likely this would be a transfer of 300 shares to D. Gain to C would be $75.
   	e.	C and D.

QUESTION 2

1. C contributes appreciated property worth $800, with an adjusted basis of $600, to newly formed Z Corporation in exchange for all the 80 outstanding shares of Z. Immediately thereafter, C gives 20 shares to D, C’s employee, in payment of accrued wages. C had agreed with D that if D would stay with the newly incorporated Z, C would be bound to give D the shares.

   	a.	351 does not appliy since C does not have control immediately after.
   	b.	351 does not apply under American Bantam Car
   	c.	351 applies and C has gain of $50 on the satisfaction of the debt to D.
   	d.	a and b.
   	e.	None of the above.

QUESTION 3

1. C owns all of the stock of Z Corporation, which is worth $1 million. Z wants to acquire land worth $75,000 from D. C proposes to transfer $1.00 of cash to Z at the same time D transfers the land to Z. Each C and D will receive stock.

   	a.	This is not a good Section 351 transaction. D could recognize loss and Z Corporation will take a higher carry-over basis from D.
   	b.	This is a good Section 351 transaction since C is transferring de minimus amount of property per regulation 1.351(a)(1)(ii).
   	c.	Neither of the above.

QUESTION 4

1. C and D jointly organized Z. C leases real property to Z for 40 years, receiving $500 in cash and half of Z’s stock. D transfers $500 in cash to Z in exchange for the other half of Z’s stock.

   	a.	This is a good Section 351 transaction. Z takes a $500 basis in the lease amortizable over 40 years.
   	b.	This is simply a lease of property by C to Z with C being paid in cash and stock. C’s income is $500 plus the fair market value of the stock.
   	c.	Neither of the above.

Answer 1