Question

5. Rose bought a piece of land 3 years ago for $33. Today the fair market value is $100 and she transfers it to Flower Inc in exchange for all 100 shares of Flower's voting common stock worth $100. There are no other shareholders. a. Does Rose recognize gain on the transfer, show the calculation of gain or loss realized and gain or loss recognized labeled the way we do it in class. b. What is Rose's basis in the stock? Show the solution, properly labeled. c. What is Rose's holding period in the stock? d. What is Flower's basis in the land? e. What is Flower's holding period for the land f. Would your answer to part (b) and (d) change if the fair market value of the land were $50 and Rose's basis was $75? If yes, what would the answers change to?

Answer 1

Shareholder do not recognize gain or loss on the transfer of assets to a corporation in exchange for stock as long as three requirement are satisfied. First, the shareholder must bansfer property to the corporation in exchange for stock. The term "property" includes cash & real of intangible property . but not seruices Secondly, immediately after the transfer, the bansferor together with all the other persons who also bansfered property as a past of same bansaction are in "control" of the corporation Control" means the ownership of 80% of the voting power of the voting stock of the corporation

Page (A Gain Ilois scalesed $100-$33 z $67 Recognise gain a $0. (B) Basis in the stock - Adjusted basis of auet bansfer C & Goun recognile on exchange 2 Boot screened. 6) liabilities A < two = $33 will be her basis ros The shareholder's holding peuod for stocle recieved in exchange depends on the shareholded's holding period of the property transfered to Cosporation in exchange for stocle. Hence it will 3 years rds A cosporation that recieves property pom shareholder in Exchange for its stock genesally has same basis Absthasholder had increased by and gain Decognised by shoxholdes Hence $33

e The banstesce corporation's holding period for property acquired in a tansaction satisfying requise- ments of sec 351 includes the period of time the property dwas held by the pansferos. of Sec 36 3(e)(2) pruents shareholdes from creating double loss by temsfening Yoes propeety to a Cooporation I cooporatiop's property banstesed by shareholder exceed their total EMV , the basis to the corporation of properties is limited to their Total RMV il $50 e loss will be recognised by & Shareholder of $25 ($75-8000 No efect on holding period