Question

Beltran is forming a new corporation and wants to take advantage of §351 deferral. He will be contributing various property and also his time which is valued at $100 per hour. Beltran may ______.

a. include the value of his time in the basis of the property.
b. allocate a reasonable portion of the value of his time to the stock.
c. exclude the value of his time from consideration.
d. depreciate the value of his time over a specified period.

Answer 1

The correct answer is that Beltran must exclude the value of his time from consideration when transferring property to a corporation under Section 351, as the IRS does not consider services as property for the purpose of this deferral.

Step-by-step explanation:

The subject of this question is related to tax law under Section 351 of the Internal Revenue Code, which applies to the formation of a corporation by exchanging property for stock. Specifically, the question revolves around the ability to defer recognition of gain on property transferred to a corporation in exchange for its stock. When Beltran is forming a new corporation and contributing various properties, including his time, he cannot include the value of his time as part of the basis of the transferred property. The correct answer to this question is: c. exclude the value of his time from consideration. Services rendered are not considered property under Section 351, and the provision is not intended to cover payment for services with stock; such compensation is typically treated as ordinary income.