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It is altogether clear that for purposes of section 351, not every right is to be treated as property. The second sentence of such section indicates that, whatever may be considered as property for purposes of local law, the performance of services, or the agreement to perform services, is not to be treated as a transfer of property for purposes of section 351.
Chicora Apartments, Inc., was formed to construct and operate an apartment project. In return for obtaining the financing for the project and an FHA commitment to insure such financing, James received 50 percent of Chicora's stock. The Talbots received the other 50 percent of the stock in return for their transfer to Chicora of appreciated land on which the apartment project was to be constructed.
Was the transaction by which Mr. James and Mr. Talbot acquired stock in a corporation taxable?
The court found that the stock received by James was issued for services and not in exchange for property. Consequently, the fair market value of the stock is taxable to James as ordinary income. Since James received his stock for services, transferors of property were not in control of Chicora immediately after the transfer within the meaning of sec. 351, I.R.C. 1954, and the Talbots are taxable on the gain realized in the exchange of their land for stock.