Kendall and Sebastian form Party Inc., a C-Corporation. Sebastian transfers land (FMV $200,000 and adjusted basis of 200,000) and agrees to provide legal services to draft the organization documents worth $190,000 for 50% of the stock in the corporation. Kendall transfers equipment (FMV $410,000 adjusted basis of $85,000 for 50% of the stock in the corporation and $20,000 cash. The value of the stock received is $290,000 for each Kendall and Sebastian. Show all calculations.

a. Will the transfer qualify under §351 as a tax free transfer? Explain.

b. What are the tax consequences to Kendal and Sebastian including the basis in the stock they received?

c. What is Party Inc.’s basis in the land and equipment received?

d. Would your answers change to questions a and b if Sebastian had only contributed the services?

Answer rating: 100% (QA)

A Yes we can say that transfer qualify under section 351 is tax free because bo... View the full answer