Question

Zhang incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation’s stock. The property transferred to the corporation had the following fair market value and adjusted basis.

                                                              FMV                Adjusted Basis

                        Inventory              $    20,000                  $   9,000
                        Building                   250,000                  100,000
                        Land                        530,000                   300,000
                        Total                      $ 800,000               $ 409,000

          The corporation also assumed a mortgage of $500,000 attached to the building and land. The fair market value of the corporation’s stock received in the exchange was $300,000. The transaction met the requirements to be tax-deferred under §351. What amount of gain or loss does Zhang recognize on the transfer of the property to her corporation?

Answer 1

facts

a zhang limited incorporated sole proprietorship by transferring inventor, land aand building for 100 percent of stock.

provison:

Section 351(a) provides that no gain or loss shall be recognized if property is is
transferred to a corporation by one or more persons solely in exchange for stock in such
corporation and immediately after the exxchange such person or persons are in control
(as defined in § 368(c)) of the corporation.

CONTROL:

Section 368(c) defines control to mean the ownership of stock possessing at
least 80 percent of the total combined voting power of all classes of stock entitled to
vote and at least 80 percent of the total number of shares of all other classes of stock of
the corporation.

By the above provision since, sstock possession is more than 80% no gain or loss shall be recognised.