Question

During the current year, Marlene, Nancy and Olive formed a new S Corporation. Solely in exchange for stock, Marlene and Nancy contributed appreciated property, while Olive contributed services. The exchanges of Marlene and Nancy will be nontaxable if:__________.

a) Olive receives 30% of the stock
b) Olive receives 80% of the stock
c) Olive receives 15% of the stock
d) Marlene and Nancy together receive 50% of the stock

Answer 1

c) Olive receives 15% of the stock

Step-by-step explanation:

In order for Marlene and Nancy's contribution to be non-taxable, they must receive in exchange at least 80% of the S corporation's voting stocks. That means that in order for this to hold, Olive has to receive 20% or less of the S corporation's voting stock, and the only possible option is C.