Taxation

Sara and Jane form Wren Corporation. Sara transfers property, basis of $25,000 and fair market value of $200,000, for 50 shares in Wren Corporation. Jane transfers property, basis of $10,000 and fair market value of $185,000, and agrees to serve as manager of Wren for one year; in return, Jane receives 50 shares in Wren. The value of Jane’s services to Wren is $15,000.

a. What gain or income will Sara and Jane recognize on the exchange?

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b. What basis will Wren Corporation have in the property transferred by Sara and Jane? How should Wren treat the value of the services Jane renders?

Assume, that Jane receives the 50 shares of Wren Corporation stock in consideration for the appreciated property and for providing legal services in organizing the corporation. The value of Jane’s services is $15,000. a. What gain or income does Jane recognize? b. What is Wren Corporation’s basis in the property transferred by Jane? How should Wren treat the value of the services Jane renders?

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