C borrows $250 from bank on a non-recourse loan with property assecurity. C then transfers the property to Z Corp, subject to thedebt, in exchange for half of Z's stock and D transfers $250 incash to Z in exchange for the other half of Z's stock. Assume theproperty has a fair market value of $500 prior to the borrowing anda basis of $200. Assume also that the borrowing does not have a taxavoidance purpuse under 357 (b). Finally, assume C also contributeshis own note promising to pay Z $50.
a. The transaction does not qualift under Section 351
b. The transaction qualifies under SEction 351. There is no gainor loss to recognize since no boot is received.
c. Boot is received equal to the amount of the liability of $250so that gain must be recognized to that extent.
d. Boot is received to the extent of $50, the excess of theliability over the basis of the property. Gain must be recognizedto that extent unless C can successfully argue that his $50 noteeliminates the boot.
e. None of the above
C borrows $250 from bank on a non-recourse loan with property assecurity. C then transfers the property to Z Corp, subject to thedebt, in exchange for half of Z's stock and D transfers $250 incash to Z in exchange for the other half of Z's stock. Assume theproperty has a fair market value of $500 prior to the borrowing anda basis of $200. Assume also that the borrowing does not have a taxavoidance purpuse under 357 (b). Finally, assume C also contributeshis own note promising to pay Z $50.
a. The transaction does not qualift under Section 351
b. The transaction qualifies under SEction 351. There is no gainor loss to recognize since no boot is received.
c. Boot is received equal to the amount of the liability of $250so that gain must be recognized to that extent.
d. Boot is received to the extent of $50, the excess of theliability over the basis of the property. Gain must be recognizedto that extent unless C can successfully argue that his $50 noteeliminates the boot.
e. None of the above
