Gabriella and Juanita form Luster Corporation. Gabriella transfers cash of $50,000 for 50 shares of stock, while Juanita transfers information concerning a proprietary process (basis of zero and fair market value of $50,000) for 50 shares of stock.
A) The transfers to Luster are fully taxable to both Gabriella and Juanita.
B) Juanita must recognize gain of $50,000.
C) Because Juanita is required to recognize gain on the transfer, Gabriella also must recognize gain.
D) Neither Gabriella nor Juanita will recognize gain on the transfer.
E) None of the above.

Question

Quizplus · Accepted Answer

Under IRC Section 351, no gain or loss is recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control of the corporation. Both Gabriella and Juanita meet these requirements, so neither recognizes gain.

Gabriella and Juanita Form Luster Corporation