Individuals C and D each transferred, to a newly organized corporation, property having a fair market value of $4,500 in exchange for the issuance by the corporation of 45 shares of its capital stock to each transferor.
At the same time, the corporation issued to E, an individual, 10 shares of its capital stock in payment for organizational and promotional services rendered by E for the benefit of the corporation. E transferred no property to the corporation, and C and D were under no obligation to pay for E’s services.
No gain or loss is recognized to C or D. E received compensation taxable as ordinary income to the extent of the fair market value of the 10 shares of stock received by him.
C and D each receive 45 shares for property, together holding 90 of the 100 shares outstanding.
Because E transferred no property, E’s 10 shares are not counted in measuring control under section 351.
C and D recognize no gain or loss because the property transferors satisfy the control requirement.
E recognizes ordinary income equal to the fair market value of the 10 shares received for services.
