Several Years Ago, Theodore Theory Started His Own Company for Manufacturing

question 15

Multiple Choice

Several years ago, Theodore Theory started his own company for manufacturing peripheral equipment such as memory chips and boards.This year he transferred all of the assets and liabilities of his high-tech business, worth $10 million, to a newly formed corporation in exchange for 10 percent of its stock.The other transferor was a large conglomerate that contributed the assets of its technology division, worth $90 million, to the corporation in exchange for 90 percent of the stock.Theo retired to Florida and followed his investment in The Wall Street Journal while the conglomerate took over total control of the new enterprise.Which of the following statements is true?

• A)Theo should qualify for nonrecognition under § 351 in this situation, since the transaction meets its literal requirements and is consistent with the policy underlying the provision.
• B)Theo will qualify for nonrecognition under a literal interpretation of the Code even though the application of § 351 in this situation is inconsistent with the policy underlying the provision.
• C)Theo will not qualify for nonrecognition in this situation under § 351, since he has neither met the literal requirements of the provision nor satisfied the policy underlying the law.
• D)Although application of § 351 is consistent with the policy underlying the provision in this situation, Theo will not qualify for nonrecognition because he has not met the provision's literal requirements.

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Definitions:

Zuckerman

Refers to Marvin Zuckerman, a psychologist known for his research on sensation seeking and its implications on personality and behavior.

Sensation Seeking

A personality trait characterized by the search for experiences and feelings that are varied, novel, complex, and intense.

Middle School

An educational institution serving students typically between the ages of 11 and 14, bridging the transition from elementary school to high school.

Zuckerman

Refers to Marvin Zuckerman, an American psychologist known for his research on sensation seeking as a personality trait.