In order to retain the services of Tekashi, a key employee in Ted’s sole proprietorship, Ted...
In order to retain the services of Tekashi, a key employee in Ted’s sole proprietorship, Ted contracts with Tekashi to make him a 30% owner. Ted incorporates the business receiving in return 100% of the stock. Three days later, Ted transfers 30% of the stock to Tekashi. Under these circumstances, § 351 will not apply to the incorporation of Ted’s business. True or False? Please explain.
Homework Answers
| TRUE |
| In spite of Ted’s momentary control, it will not suffice if such control is lost by a contractually binding prearranged agreement. Because the threshold requirement of 80% for control under Sec. 351 is not met is subject to federal income tax. |
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