Samuel and Zachary formed S & Z Accounting & Tax Services, Inc. on 1/1/16. Each shareholder contributed the following in exchange for his corporate stock:
Shareholder/Item Asset (Basis) Asset (FMV) Shares Received
Samuel – property (acquired 5 yrs. ago) $25,000 $40,000 90 shares
Zachary – services 0 20,000 10 shares
$25,000 $60,000 100 shares
a) Does Sec. 351 apply? Explain.
b) How much gain or loss, if any, does Samuel realize?
c) How much gain or loss, if any, must Samuel recognize?
d) What is Samuel’s basis in his stock?
e) When does Samuel’s holding period begin for the stock he received?
f) What is the corporation’s basis in the property received from Samuel?
g) Does Zachary have to recognize any income? If so, how much and what is its nature (capital gain or ordinary income)? What is his basis and holding period in his stock?
Asset (Basis) | Asset (FMV) | Shares Received | |
---|---|---|---|
Samuel-property (acquired 5years ago) | 25,000 | 40,000 | 90 |
Zachary-services | 0 | 20,000 | 10 |
TOTAL | 25,000 | 60,000 | 100 |
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