Question

hang 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

As per Section 351 of the Inernal Revenue Code, no gain or loss is to be recognized when property is transferred to a corporation solely in exchange for stock in such corporation.

This is applicable when the transferors are in control of the corporation immediately after the exchange. Thus, the gain or loss won't be recognised if the requirements of Section 351 are complied with

Since it has been provide that the requirements as per Section 351 has been met with, no amount of gain / loss shall be recognized on the transaction.