Let's now apply the non-recognition rules to Sunchaser Shakery.
Nicholas contributed 500 shares of Marley Corporation stock to
the Sunchaser Shakery Partnership in exchange for
a 25% interest and Sunchaser's capital and profits.
The stock which he purchased two years ago for
$10,000 was worth $300,000 when contributed.
After his stock contribution,
Sunchaser's net assets were worth $550,000,
and we want to know what amounts if any do Sunchaser and
Nicholas recognize on the exchange.
Well, this is a fairly straight forward problem
given that we just talked about Section 721,
which provides that there is no gain or loss recognition.
We have a situation where a partner exchanges property for an interest in a partnership.
So recall that basically in this particular problem he's transferring
corporate stock that he already owns as
investment property which by definition is property.
So he's contributing property in exchange for an interest in a partnership.
721 covers both the partnership and the partner unlike
351 and 1032 which require two separate code sections to address each party.
So, here we have no gain or loss recognition because there is
no control requirement for partnerships as there is with corporations.
Nicholas and Emily form Sunchaser Shakery partnership during the current year.
Nicholas contributed $100,000 of cash and Emily contributed land worth $40,000
with a basis of $60,000 and equipment worth $60,000 with a basis of zero.
Each received a 50% interest in the capital and profits of Sunchaser.
And we want to know what amount of gain if any do Nicholas,
Emily and Sunchaser recognize on the exchange.
Well, just like the previous problems,
section 721 is going to apply here as well because we have
partners transferring property in exchange for an interest in a partnership.
721 covers the gain or
loss recognition provisions for both the partners and the partnership.
And here because all requirements are met,
there is no gain or loss recognition for any of the parties.