Response to the following problem:
Introduction:
Al, Bob, and Carl form West Corporation and transfer the following items to West:
Items transferred
|
Transferor
|
Item
|
Transferor's Basis
|
Fair Market Value (FMV)
|
Shares Received by Transferor
|
|
Al
|
Patent
|
'0'
|
$25,000
|
1,000 common
|
|
Bob
|
Cash
|
$25,000
|
$25,000
|
250 preferred
|
|
Carl
|
Services
|
'0'
|
$7,500
|
300 common
|
The common stock has voting rights, while the preferred stock does not.
Task(s):
a. Is the exchange nontaxable under Sec. 351? Explain the tax consequences of the exchange to Al, Bob, Carl, and West.
b. How would your answer to Part a change if Bob had received 200 shares of common stock and 200 shares of preferred stock?
c. How would your answer to Part a change if Carl had contributed $800 cash as well as services worth $6,700?