Gabriella and Juanita form Luster Corporation. Gabriella transfers cash of $50,0

Question

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. Because Juanita is required to recognize gain on the transfer, Gabriella also must recognize gain.

b. Juanita must recognize gain of $50,000.

c. Neither Gabriella nor Juanita will recognize gain on the transfer.

d. The transfers to Luster are fully taxable to both Gabriella and Juanita.

e. None of these choices are correct.

Explanation / Answer

Neither Gabriella nor Juanita will recognize gain on the transfer. Since gabriella transfers cash of 50000 and does not earn any gain on it no gain is recognised. Juanita just transfers the information concerning a proprietory process, again she does not earn or recognized any gain. So correct answer is C.

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