Question

1.      Suppose A transfers land worth $85 with an adjusted basis of $10 in exchange for 85% of the stock of Dog Corp. B provides services to Dog Corp in exchange for the remaining 15% of the stock.

a)       Is A taxed on the transfer of the land?

b)     Is B taxed on the receipt of stock for services?

c)      If A's land were worth $79 and she transferred it for 79% of the stock and B's services were worth $21 so he received 21% of the stock is A taxed?

d)     Suppose B's services were worth $19 so he also transferred $2 in cash to get the 21% of the stock. Does your answer to the prior question change? (See the bottom of page 7)

e)     Suppose A's land is worth $100,000 (adjusted basis is $500). Dog Corp wants to acquire the land. A transfers the land in exchange for $100,000 worth of stock which is 2% of Dog Corp. Canine owns 90% of Dog and agrees to transfer $1 in exchange for 1 additional share of Dog.  Is A taxed on the transfer of the land?

Answer 1

a) As per Publication 542, A would not be taxed as he holds more than 80% of the stock and is in control of the organization. Publication 542 states that exchange of property for stock in the company of more than 80% is not taxable in hands of the stockholder.

b) Yes, B shall be taxed.

c) As per Publication 542, A would be taxed as he don't control the corporation

d) No, the answer would be same

e) As per Publication 542, A would be taxed as he don't control the corporation