Question

Scott has transferred some property to a corporation in a Section 351 transaction. In turn, Scott received property as well as stock from same corporation. Under Section 351, the implications of this transfer for Scott would be that:
A. he could recognize gain.
B. he will not be considered to have gained control.
C. he will be unable to recognize gain or loss on the transaction.
D. his transaction will be considered a nontaxable exchange.

Answer 1

Solution:

As per provision of section 351, "Neither gain nor loss is recognized upon the transfer by one or more persons of property to a corporation solely in exchange for stock in that corporation if, immediately after the exchange, such person or persons control the corporation"

Where property is tranferred to a corporation in exchange for stock and other "property"; only the portion of the transfer exchanged for stock will qualify for deferral,

The portion of the transfer relating to the other property is referred to as "Boot"

In the given quesiton Scott has transferred some property to a corporation in a section 351 transaction, it means after transfer Scott wil control the corporation. Further Scott received property as well as stock from same corporation.

Thereofore, Scott could recognized gain related to value of other property received.

Hence option A is correct.