Question

In 2015?,Curt?,Jay?,and Fiona form Sirens Corporation.Curt contributes land? (a capital? asset) having a $100,000 FMV in exchange for

90 shares of Sirens stock. He purchased the land in 2013 for $140,000.Jay contributes machinery? (Sec. 1231 property purchased in 2012?)

having a $75,000 adjusted basis and a $60,000 FMV in exchange for 60 shares of Sirens stock.Fiona contributes services worth $40,000 in exchange for 30 shares of Sirens stock.

a.	What is the amount of Curt?'srecognized gain or? loss?
b.	What is Curt?'s basis in his Sirens ?shares? When does his holding period? begin?
c.	What is the amount of Jay?'s recognized gain or? loss?
d	What is Jay?'s basis in his Sirens shares? When does his holding period? begin?
e.	How much? income, if? any, does Fiona recognize?
f.	What is Fiona?'s basis in her Sirens ?shares? When does her holding period? begin?
g.	What is Sirens?'s basis in the land and the? machinery? When does its holding period?begin? How does Sirens treat the amount paid to Fiona for her? services?

Answer 1

Part A)

The realized loss of $40,000 ($1,40,000- $100,000) will not be recognized. It is the basic rule (Section 351 (a)) that if the property is transferred to a corporation in exchange for its shares, and the transferor of the property gains control over the corporation immediately after the transfer, no loss or gain on such an exchange is to be recognized.

________

Part B)

Dick's basis in Triton shares will be equal to the purchase value of the land transferred by him. In other words, the value of Dick's basis in Triton shares will be $140000.

Dick's holding period begins from the year 2013, when the land was first acquired by him. It is so, because as per the applicable rules, the holding period of stock received in exchange for any capital asset transferred in a corporation includes the holding period of the property so transferred.

________

Part C)

The realized loss of $15,000 ($75,000 - $60,000) will not be recognized. It is the basic rule that if the property is transferred to a corporation in exchange for its shares, and the transferor of the property gains control over the corporation immediately after the transfer, no loss or gain on such an exchange is to be recognized.

________

Part D)

Evan's basis in Triton shares will be equal to the adjusted basis of the property transferred by him. In other words, the value of Evan's basis in Triton shares will be $75,000.

Evan's holding period begins from the year 2012, when the property was first acquired by him. It is so, because as per the applicable rules, the holding period of stock received in exchange for any capital asset transferred in a corporation includes the holding period of the property so transferred.

________

Part E)

Fran will recognize $40,000 (the fair value of the stock so received) as his ordinary income for the services performed by him in exchange for the stock of Triton. A person performing services in exchange for the stock of the company cannot defer the gains/losses as applicable in Section 351.

________

Part F)

Fran's basis in Triton shares will be equal to the value of the stock received by him in exchange for the services provided. In other words, the value of Fran's basis in Triton shares will be $40,000.

Fran's holding period begins from the year 2015. It is so, because as per the applicable rules, the holding period of stock received in exchange for services or against transfer of any property other than a capital asset, the holding period is to begin from the next day after the exchange.