Question

Doug, Elbert, and Fran form DEF Corporation by transferring the following: From Transferor Property Transferred Stock Received 10-Year Notes Doug $75,000 $75,000 $0 Elbert $25,000 $25,000 $0 Fran $25,000 $0 $25,00 Would Does the above transfer qualify Doug and Elbert for nonrecognition of gain or loss under Code Sec. 351? A. No, the note disqualifies the transfer. B. No, control was not obtained in the transfer. C. Yes, the note is not considered stock and control is obtained D. Yes, transfers to start a corporation are always allowed to exclude gains in transfer.

Answer 1

option B is correct. As per section 386 (c) control means that atleast 80% shares are held by an individual. As none of are holding 80% shares the transactions will not qualify for code sec 351