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More_on_problem_35 - Fair value of each share = $100 Why...

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More on problem 35 Why Monica is dissatisfied. Part (a) Monica Rachel FMV Shares FMV Shares Existing Interest (assumed) 150,000 1,500 150,000 1,500 Property contributed (given) 300,000 3,000 450,000 4,500/6,000 75% 150,000 1,500/6,000 25% Note: We know that the fair value of Monica’s existing interest must have been ½ of the property contributed & the number of shares she received must have doubled in order to increase her interest from 50% to 75% (while Rachel’s interest fell from 50% to 25%). I assumed each owned 1,500 shares initially, but any number of shares will work.
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Unformatted text preview: Fair value of each share = $100. Why Rachel’s contribution won’t qualify the transaction for Sec. 351 treatment. Part (b) Monica Rachel FMV Shares FMV Shares Existing interest (assumed) 150,000 1,500 150,000 1,500 Property contributed (given) 300,000 3,000 100 1 450,000 4,500/6,001 74.98% 1,501/6,001 25.01% Note: This is why Rachel’s contribution won’t work – because of the 10% “relatively small value test”. In this example, her contribution would have to be at least $15,000....
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