Sami Transferred Property with a Fair Market Value of $600

question 94

Multiple Choice

Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation in exchange for stock with a fair market value of $600. In addition, Sami received stock with a fair market value of $50 in exchange for services she provided to the corporation in the incorporation process. Which of the following statements best describes the tax result to Sami because of the exchanges?

• A) Sami will recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
• B) Sami will recognize $50 of compensation income, but she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
• C) Sami will not recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.
• D) Sami will not recognize $50 of compensation income, and she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.

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Definitions:

Sale of Goods Act

Legislation governing the sale of goods, providing rules on contracts, property transfer, and warranties to protect buyers and sellers.

Fitness and Quality

Standards and criteria that products or services must meet to be considered satisfactory and suitable for their intended purpose.

Principle Of Privity

The Principle of Privity in contract law states that only parties involved in the contract have the right to sue or be sued on that contract, highlighting the exclusivity of contractual obligations and benefits.

Consumer Protection

Laws and regulations designed to safeguard buyers of goods and services against unfair practices.