A is a research pharmacologist. He has been pursuing a patent a patent on a formula which when developed into a commercial product will dramatically decrease reliance on opioids following surgery.

In an exchange qualifying for Sec. 351 IRC tax-free treatment, A received 1000 shares of Painless Corporation stock plus a contingent right to receive an additional 250 shares. The contingent shares will be awarded upon the valuation of his patent application. Because the patent license is pending, the patent cannot be usefully valued for several months.

Prepare a memorandum for your tax manager explaining whether the contingent shares are considered stock for purposes of Section 351 IRC and what tax consequences ensue from As receipt or non-receipt of the actual and contingent shares of stock.

A is a technological genius but is inexperienced in the business arena. He also asks that your memorandum with respect to the Section 351 IRC treatment of his contingent shares also discuss Sections 1244 IRC & 1202 IRC and their possible application to this issue.