Al, Bob, and Carl form West Corporation and transfer the following items to West:
Transferor Item Transferor's Basis Fair Market Value (FMV) Shares Received by Transferor
Al Patent –0– $25,000 1,000 common
Bob Cash $25,000 $25,000 250 preferred
Carl Services –0– $7,500 300 common
The common stock has voting rights, while the preferred stock does not.
a. Is the exchange nontaxable under Sec. 351? Explain the tax consequences of the exchange to Al, Bob, Carl, and West.
b. How would your answer to Part a change if Bob had received 200 shares of common stock and 200 shares of preferred stock?
c. How would your answer to Part a change if Carl had contributed $800 cash as well as services worth $6,700?