Rose and Wayne Form a New Corporation

question 54

Multiple Choice

Rose and Wayne form a new corporation. Rose contributes cash for 85% of the stock and Wayne contributes services for 15% of the stock. The tax effect is

• A)Rose and Wayne must recognize their realized gains, if any.
• B)Wayne must report the FMV of the stock received as capital gain.
• C)Rose and Wayne are not required to recognize their realized gains.
• D)Wayne must report the FMV of the stock received as ordinary income.

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Definitions:

Underlying

Constituting the fundamental or basic layer or aspect of something, often not immediately visible or apparent.

Observed

Noted or perceived through careful attention or surveillance.

Genotype

The genetic constitution of an individual organism, determining inherited characteristics.

Phenotype

Describes the set of observable characteristics or traits of an organism as a result of the interaction of its genotype with the environment.