Sam and Vera Are Going to Establish a Business

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The Answer is q. Under § 351, no gain or loss is recognized at the time of the contribution of the assets to the S corporation. Since Sam and Vera satisfy the 80% control requirement, § 351 applies. Sam's basis for his stock is $100,000 and Vera's basis for her stock is $30,000 ($65,000 - $35,000), a carryover basis. The corporation's basis for its assets is a carryover basis (i.e., $100,000 for the cash and $65,000 for the land and building.
r. Under § 721, no gain or loss is recognized at the time of the contribution of the assets to the partnership. Note that § 721, unlike § 351, does not have a control requirement. Sam's basis for his partnership interest is $117,500 [$100,000 + (50% × $35,000)], and Vera's basis for her partnership interest is $47,500 ($65,000 - $17,500), a carryover basis. The partnership's basis for its assets is a carryover basis (i.e., $100,000 for the cash and $65,000 for the land and building).
s. The tax consequences for Sam, Vera, and the C corporation are the same as in a., above (i.e., § 351 applies to both C corporation and S corporations).

Sam and Vera Are Going to Establish a Business

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