Apu, Barney, Clancy, Homer, and Seymour (none of whom are related to one another), working together, form the Be Sharps Corporation ("Sharps") on January 1, 20x1. The corporation only issues voting, common stock. 

• Apu contributes cash of $150,000 for 15% of Sharps common, voting stock. 

• Barney contributes musical equipment (basis of $328,000 and fair market value of $400,000) in exchange for 30% of Sharps common, voting stock and $100,000 in cash from the corporation. 

• Clancy contributes investment land with a basis of $598,000 and a fair market value of $200,000 in exchange for 20% of Sharps common, voting stock. 

• Homer contributes a building (basis of $40,000 and a fair market value of $120,000) in exchange for 10% of Sharps common, voting stock and $20,000 in cash from the corporation. 

• Seymour contributes $1,000 in cash and managerial services worth $249,000 in exchange for 25% of Sharps common, voting stock (with no restrictions). 

Answer the following, remembering to explain your answers and cite to the primary authority that supports your answer. 

A. Does Section 351 apply to the formation of Sharps? Why or why not? 

B. Assume instead that Seymour contributed $50,000 in cash and managerial services worth $200,000 in exchange for 25% of Sharps common, voting stock (with no restrictions). Would Section 351 apply to the formation of Sharps? Why or why not? 

C. How, if at all, would your answer to Part B change if all the shareholders were still working together to form Sharps, but that Barney did not make his contribution until March 1 (instead of January 1 like the rest of the shareholders)? Explain. 

For Parts D-N below, assume that Section 351 applies, that Part C does not apply, and that Seymour contributed the amounts set forth in Part B. 

D. What is Barney's recognized gain, loss, or income? 

E. What is Clancy's recognized gain, loss, or income? 

F. What is Homer's recognized gain, loss, or income? G. What is Seymour's recognized gain, loss, or income? (Recall we are using the facts of Part B here). 

H. What is Barney's basis in his Sharps stock?

I. What is Homer's basis in his Sharps stock? J. What basis does Sharps take in the musical equipment contributed by Barney? K. What basis does Sharps take in the investment land contributed by Clancy? 

L. What basis does Sharps take in the building contributed by Homer? 

M. What gain, loss, income, or deduction does Sharps recognize from the contributions by Apu, Barney, Clancy, and Homer? 

N. What gain, loss, income, or deduction does Sharps recognize from the contribution by Seymour? For the remainder of this problem, assume that Part C does not apply, and that Seymour contributed the amounts set forth in Part B. 

O. Now assume that on February 1, 20x1, Barney sells all of his Sharps stock to Nigel. Under what circumstances would this sale cause the formation of Sharps to NOT qualify for Section 351? Explain. 

P. Assume, for whatever reason, that the formation of Sharps does NOT qualify for Section 351. Which of the shareholders would be most upset? Explain why.