Nick exchanges property (basis of $100,000; fair market value of $3 million), for 65% of the stock of Yellow Corporation. The other 35% of the stock is owned by Gloria who acquired it several years ago. What are the tax consequences to Nick?
Nick has a taxable gain of $2,900,000 . Section 351 does not apply because Nick failed to receive at least 80% control of Yellow Corporation. Therefore, the transaction is a taxable exchange. Nick has a $3 million basis in his stock and Yellow Corporation has a basis of $3 million in the property.
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