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:

Defense Mechanisms

Psychological strategies brought into play by individuals or the mind unconsciously to protect against anxiety, social sanctions, or to provide a refuge from reality.

Conscious

The state of being aware of and able to think about one's own existence, sensations, thoughts, surroundings, etc.

Reality

The state of things as they actually exist, as opposed to an idealistic or notional idea of them.

Repression

A psychological defense mechanism where distressing thoughts, memories, or impulses are excluded from consciousness.