Allen, Barry, and Carl are incorporating their real estate sales partnership, which will become the ABC Corporation. Allen will contribute a building with a basis of $25,000 and a fair market value of $50,000 in return for 500 shares. Barry and Carl will each contribute $50,000 cash for 500 shares each. To retain the services of their top sales associate, Drake, they will provide 500 shares to him in return for his services. Explain the tax consequences of these transactions for each shareholder, and the corporation.
Allen, Barry, and Carl are incorporating their real estate sales partnership, which will become the ABC Corporation. Allen will contribute a building with a basis of $25,000 and a fair market value of $50,000 in return for 500 shares. Barry and Carl will each contribute $50,000 cash for 500 shares each. To retain the services of their top sales associate, Drake, they will provide 500 shares to him in return for his services. Explain the tax consequences of these transactions for each shareholder, and the corporation.
Chapter13: Choice Of Business Entity—general Tax And Nontax Factors/formation
Section: Chapter Questions
Problem 75DC
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Transcribed Image Text:Allen, Barry, and Carl are incorporating their real estate sales partnership, which will become the
ABC Corporation. Allen will contribute a building with a basis of $25,000 and a fair market
value of $50,000 in return for 500 shares. Barry and Carl will each contribute $50,000 cash for
500 shares each. To retain the services of their top sales associate, Drake, they will provide 500
shares to him in return for his services. Explain the tax consequences of these transactions for
each shareholder, and the corporation.
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