Question

Three individuals form ABC Corporation with the following contributions: Cliff, cash of $50,000 for 50 shares; Brad, land worth $20,000 (basis of $11,000) for 20 shares; and Ron, cattle worth $9,000 (basis of $6,000) for 9 shares and services worth $21,000 for 21 shares. Which of the following statements is correct?

A. These transfers are fully taxable and not subject to § 351. B. Ron’s basis in his stock is $27,000.
C. Ron’s basis in his stock is $6,000.
D. Brad’s basis in his stock is $20,000.

E. None of the above.

Answer 1

B.. Ron's basis in his stock is $27000 is true This is true because the property contributed by Ron is not considered insignificant compared to the value of services rendered, the entire contribution is counted as being for property. Ron's stock bans es calculated as follows: $6ooo (basis of cattle transferred) +$21000 (income recognised on seewices rendered $27000 o Ron's basis in his stock is $27,000 is true.

A.) Section 351 will not apply in this situation because the control requirement has not been satisfied. C. Ron's banis in his stock should include the bans of cattle and also the income recognised from serinces worth $21,000. D) Brad's bans in his stock is $20000 is a wrong Statement as his bars in stock is $11,000 ginen. & None of the above is the wrong answer as the option B is the correct answer. Therefore, option B. Ron's bars in his stock is $27,000 is the true statement