Dan Transfers Property with an Adjusted Basis of $50,000 and an FMV

question 46

Essay

Dan transfers property with an adjusted basis of $50,000 and an FMV of $100,000 to a newly formed Sun Corporation in exchange for 500 shares of Sun stock, which is one-half of the outstanding Sun stock. His daughter, Sylvia, transfers property with an adjusted basis of $25,000 and an FMV of $50,000 for the other 500 shares at the same time. What are the tax consequences of the two transfers, assuming all the requirements of Sec. 351 are met?

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Definitions:

Rate Of Return

Accumulation or reduction in the investment value over a chosen interval, denoted as a percentage of the investment's root cost.

Outstanding Shares

The total number of shares of stock that are currently owned by investors, including restricted shares owned by the company’s officers and insiders.

Annual Dividend

The total dividend payment a company distributes to its shareholders annually, representing a share of the profits.

Required Rate

The lowest rate of return necessary for an investment to be acceptable to an investor, given its risk and alternatives available.