Matt and Sheila Form Krupp Corporation

question 15

Multiple Choice

Matt and Sheila form Krupp Corporation. Matt contributes property with an FMV of $55,000 and a basis of $35,000. Sheila contributes property with an FMV of $75,000 and a basis of $40,000. Matt sells his stock to Paul shortly after the exchange. The transaction will

• A)not qualify under Sec. 351.
• B)qualify under Sec. 351 if Matt can show that the sale to Paul was not part of a prearranged plan.
• C)qualify with respect to Sheila under Sec. 351 whether Matt qualifies or not.
• D)qualify under Sec. 351 only if an advance ruling has been obtained.

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Definitions:

Anticipated Rate of Growth

The expected annual increase in a company's revenue or profit, often expressed as a percentage.

Financial Leverage

The use of borrowed funds with a fixed cost to finance the assets of the business to increase the potential return to shareholders.

Planned Activities

Scheduled actions or tasks outlined by an organization or individual aimed at achieving specific goals.

Retention Ratio

The proportion of net income that is retained by a company rather than distributed to its shareholders as dividends.