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3. Kevin and Lori formed Wonderful Inc., a C-Corporation. Kevin transfers land (FMV $250,000 and adjusted...

3. Kevin and Lori formed Wonderful Inc., a C-Corporation. Kevin transfers land (FMV $250,000 and adjusted basis of 90,000) for 50% of the stock in the corporation and $20,000 cash. Lori transfers equipment (FMV 30,000 adjusted basis of $5,000) and will provide management services worth $200,000 after Wonderful Inc. opens for 50% of the stock in the corporation. (7 points) a. Will the transfer qualify under §351 as a tax free transfer? Explain. b. What are the tax consequences to Kevin and Lori including the basis in the stock they received? c. What is Wonderful Inc.’s basis in the land and equipment? d. Would your answers change if the value of Lori’s services was $450,000 instead?

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Answer #1

Section 351 provides that no gain or loss shall be recognized if the property is transfered to corporation by one or more person solely in exchange of stock in such corporation and immediately after the exchange such persons are in control of organization as per section 368.

Control as per section 368 means ownership of 80% of total voting power of all class of stock and atleast 80% share of all other classes of stock of the corporation.

basis above definations all the tax implications will be calculated.

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