Four Individuals Form Chickadee Corporation Under § 351 Both Jane and Walt Receive Stock in Chickadee Corporation Equal

question 98

Multiple Choice

Four individuals form Chickadee Corporation under § 351. Two of these individuals, Jane and Walt, made the following contributions: $\begin{array}{lll}&&\text { Fair Market }\\& \text { Adjusted Basis } & \text { Value }\\\text { From Jane-Cash} & \$ 360,000 & \$ 360,000 \\\text { Patent } & -0- & 40,000 \\\text {From Walt-Equipment (depreciation claimed of \( \$ 100,000 \) ) } &240,000 & 370,000\end{array}$ Both Jane and Walt receive stock in Chickadee Corporation equal to the value of their investments.

• A) Jane must recognize income of $40,000? Walt has no income.
• B) Neither Jane nor Walt recognize income.
• C) Walt must recognize income of $130,000? Jane has no income.
• D) Walt must recognize income of $100,000? Jane has no income.
• E) None of these.

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Definitions:

Tax Shifting

The process whereby the economic burden of a tax is passed on from one group to another.

Income Tax

A tax levied by governments on individuals or entities based on their income or profits, varying according to earnings levels.

Corporation Income Tax

A tax imposed on the net income of a corporation, calculated based on the company's profit.

Capital Flow

The movement of money for the purpose of investment, trade, or business production, either within a country or internationally.