Wilson was induced by Shook to coguarantee a $200,000 loan, and in return becoming an equal shareholder with Shook. Therefore, on May 28, 1964, Shook, Wilson and two other individuals created S & W all as incorporators. Then Shook was to sell 182 shares of stock in S & W to Wilson for $500 per share while Wilson was to pay interests to Shook until 1969. In 1967, the petitioner, Intermountain Lumber Co, purchased all outstanding S & W stock. Later, Shook and Wilson signed an agreement that Wilson owed Shook $91,000 for 182 shares of S & W. In this case, Shook argued that his transfer to S & W was non-taxable under section 351, while Intermountain Lumber believed that the transfer was taxable because section 351 was inapplicable. The result was determined that section 351 could not be applied and the conclusion was that Shook and Wilson intended to consummate a sale of the S & W …show more content…
Even if Michael sold 15 shares of his common stock to Emily, and Josh has taken away 10 shares of other classes of stock, Michael still satisfy the requirements of “control” for holding more than 80 percent of the voting power and more than 80 percent of other classes of stock. However, Michael and Emily have had an agreement without which the corporation would not have been formed even if it is verbal, which makes the transfer work more than a change of form only and Section 351 cannot be applied. Under this situation, Michael needs to recognize gains on the exchange. The amount realized is $500,000, and the adjusted basis is $100,000, therefore the realized gain and the recognized gain are both $400,000. Emily’s basis in the shares she obtains from Michael should be the same as if it were in the hands of Michael. Since the total 100 shares in the corporation worth $500,000, then