As a tax professional, you will have many questions that will be asked of you that will often require either minimal or significant research. This is how you stay gainfully employed in the tax profession because theres always something to learn and theres always a question that your clients want answered. Chapter 18 is the first chapter where we delve into how exactly a corporation is formed and what qualifies as a contribution under IRC Section 351 which would qualify for the nonrecognition of the gain or loss under IRC Section 351. This gain or loss is simply deferred and not a complete exclusion. For IRC Section 351 to apply three requirements must be met which are as follows:

(1). Property is transferred

(2). In exchange for stock and

(3). The property transferors are in control of the corporation after the exchange

Remember that all 3 requirements must be met in order for IRC section 351 to apply and consider the following question from your client.

Scenario:

You have a client named Lisa Lime who is so excited about recently developing a natural deodorant formula that has proven to be a hit. She contributes a nonexclusive license to use her new patented deodorant to her wholly owned corporation, Lisa, Inc. for 100 shares of stock. Does IRC Section 351 apply? Why or Why not?

Explain your research in a letter to Lisa and a memo for the firms files. Lisas address is 1234 Main Street Omaha, NE 68102.