LO.2 Ken Henderson (1635 Maple Street, Syracuse, NY 13201) exchanges property, basis of $30,000 and fair market value of $600,000, for 60% of the stock of Red Corporation.

The other 40% is owned by Joy Perry, who acquired her stock several years ago. You represent Ken, who asks whether he must report gain on the transfer. Prepare a letter to Ken and a memorandum for the tax files documenting your response.

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