Question

Ervin and Hyatt form Hendrix Corporation. Ervin transfers property (basis of $360,000 and fair market value of $440,000) for 75 shares in Hendrix Corporation. Hyatt transfers property (basis of $215,000 and fair market value of $300,000) and agrees to serve as manager of Hendrix for one year; in return, Hyatt receives 75 shares in Hendrix. The value of Hyatt's services to Hendrix is $140,000.

If an amount is zero, enter "0".

a. Ervin recognizes $ gain on the transfer. Hyatt has income of $.

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Questions have arisen concerning what constitutes property for purposes of § 351. In general, the definition of property is comprehensive. For example, along with plant and equipment, unrealized receivables of a cash basis taxpayer and installment obligations are considered property.

b. Hendrix Corporation has a basis of $ in the property it acquires from Ervin and a basis of $ in the property it acquires from Hyatt . It has a $140,000 business deduction  for the value of the services Hyatt renders.

Answer 1

a.

Ervin recognizes $ 80,000 ($ 440,000 - $ 360,000 ) gain on transfer.

Hyatt has income of $ 140,000 ( services).

.

b.

Hendrix Corporation has a basis $440,000 (fair market value of property) in the property it acquires from Ervin and a basis of $300,000 (fair market value of property) in the property it acquires from Hyatt.

It has a $140,000 business deduction for the value of the services Hyatt renders.