Jane and Walt form Yellow Corporation. Jane transfers equipment worth $950,000 (basis of $200,000) and cash of $50,000 to Yellow Corporation for 50% of its stock. Walt transfers a building and land worth $1,050,000 (basis of $400,000) for 50% of Yellow's stock and $50,000 in cash. a. Jane recognizes no gain; Walt recognizes a gain of $50,000. b. Jane recognizes a gain of $50,000; Walt recognizes no gain. c. Neither Jane nor Walt recognizes gain. d. Jane recognizes a gain of $750,000; Walt recognizes a gain of $650,000. e. None of the above.

Question

Lillianna

Business

18 March, 06:13

Jane and Walt form Yellow Corporation. Jane transfers equipment worth $950,000 (basis of $200,000) and cash of $50,000 to Yellow Corporation for 50% of its stock. Walt transfers a building and land worth $1,050,000 (basis of $400,000) for 50% of Yellow's stock and $50,000 in cash. a. Jane recognizes no gain; Walt recognizes a gain of $50,000. b. Jane recognizes a gain of $50,000; Walt recognizes no gain. c. Neither Jane nor Walt recognizes gain. d. Jane recognizes a gain of $750,000; Walt recognizes a gain of $650,000. e. None of the above.

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Answers (1)

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Ernest Williams · Answer 1

A) Jane recognizes no gain; Walt recognizes a gain of $50,000.

Explanation:

§ 351 allows individuals or businesses tax free transfers to controlled corporations. In other words, Jane and Walt can transfer assets to form Yellow Corporation without recognizing any gain or loss.

Since Walt received some money from this transaction, that must be considered a gain since it is not included under § 351.