Reference no: EM133091886

Question - Modern Corp. is a C Corporation electric vehicle startup with a single shareholder, Joe, who owns 10 shares of stock representing 100% of the outstanding shares. After two years of operation, Joe realizes they need a factory building to begin construction, and additional cash capital. They develop a business plan in which Sam will contribute his factory worth 3 million dollars (adjusted basis= 1 million) for 30 shares of the corporation, and George will buy 70 additional shares for 7 million dollars cash. Pursuant to the plan Sam transfers his factory to Modern and receives his 30 shares on November 1, 2021, and George transfers 7 million of cash in return for his 70 shares on January 23, 2022.

1- Please state, clearly and succinctly, the tax effect to Sam, if any, of these transactions.

2- Also, determine if it would make any difference if, as part of the plan, Joe acquired one additional share for $100,000 cash at the time of Sam's transfer of his factory to Modern?

Base your advice solely on Federal tax law without regard to state tax consequences.