Introduction:
Al, Bob, and Carl form West Corporation and transfer the following items to West:
Items transferred
|
Transferor |
Item |
Transferor’s Basis |
Fair Market Value (FMV) |
Shares Received by Transferor |
|
Al |
Patent |
‘0’ |
$25,000 |
1,000 common |
|
Bob |
Cash |
$25,000 |
$25,000 |
250 preferred |
|
Carl |
Services |
‘0’ |
$7,500 |
300 common |
The common stock has voting rights, while the preferred stock does not.
Task(s):
a. Is the exchange nontaxable under Sec. 351? Explain the tax consequences of the exchange to Al, Bob, Carl, and West.
b. How would your answer to Part a change if Bob had received 200 shares of common stock and 200 shares of preferred stock?
c. How would your answer to Part a change if Carl had contributed $800 cash as well as services worth $6,700?
ScholarMatic: Explanation & Answer
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