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Question 1

Max and Joe formed a corporation by Kathy contributing an asset with a FMV of $50,000 and an adjusted basis of $40,000 and Carl contributing inventory with a FMV of $40,000 and an adjusted basis of $50,000 for half of the stock in the corporation. In addition, Kathy received $10,000 of inventory from the corporation.

a.Does this exchange qualify for 351 treatment? Why?

This transaction qualifies for section 351 treatment as Max and Joe transferred property in corporation solely in exchange for stock. Can you help with additional explanation? I am sort of stuck with the key reason the follows the qualification.

Question 2

Max and Joe formed a corporation by Kathy contributing an asset with a FMV of $50,000 and an adjusted basis of $40,000 and Carl contributing legal services worth $10,000 and inventory with a FMV of $40,000 and an adjusted basis of $50,000 for half of the stock in the corporation.

a.Does this exchange qualify for 351 treatment? Why?

This transaction qualifies for section 351 treatment as Max and Joe transferred property in corporation solely in exchange for stock. Can you help with additional explanation? I am sort of stuck with the key reason the follows the qualification.

I appreciate your help.

Thanks

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