IRC Rule in case of such exchange
According to IRC Code, section 1031, states that in case of transfer of property for use in
the corporation for production, any gain or loss at the time of transfer shall not be
recognized.
Analysis
The transfer of land and building to M corporation by Sam beans that his stake in the
company increased. Since he owed 100% of the company stock, additional investment
translated to stock retains his shareholding at the same level 100%. However, the value
owned increases by the amount of newly acquired stock retains his shareholding at the
same level 100%. However, the value owned increases by the amount of newly acquired
stock. The transfer of 50,000 stocks by Peter means that the percentage of ownership of
Sam in the company reduces. Sam’s stockholding will be 100% less 15% transferred to
peter to give 85%. According to the rule above (IRC Code, section 1031), there is no loss
or gain that can be recognized in respect to the exchange at the time of exchange. The fact
that he acquired stock of value less that the property he transferred cannot be considered
loss to him or gain to the company.
Conclusion
The IRC Code, section 1031 does not recognize any gain at the point of transfer of
property to be used for the same purpose as others in the corporation. Sam did not lose and
M corporation did not gain anything recognizable at the time of transfer. The control of the
company is the one that Sam had reduced when Peter acquired 15% of shareholding.