On July 1 Alan Rees sole proprietor of Kee Nail transferred

On July 1, Alan Rees, sole proprietor of Kee Nail, transferred all of Kee\'s assets to Merit, Inc, a new corporation, in exchange for some of Merit\'s stock. Al Clyde, who is not related to Rees, also bought some of Merit\'s stock on July 1 Merit\'s outstanding capital stock consisted of 1,000 shares of common stock with a par value of $100 per share. For the transfer of Kee Nail\'s assets to be tax-free, what is the minimum number of shares of Merit\'s stock that must be owned by Rees and Clyde immediately after the exchange? A. 501 OB. 801 C. 500 D. 800

Solution

Section 351(a) provides that no gain or loss shall be recignized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control of the corporation.

Section 368(c) defines control to mean the ownership of 80% of stock of total combined voting power of all classes of stock entitled to vote.

Thus, number of shares=1000 shares*80%=800 shares

The correct option is D.