1. Lessinger v. Commissioner
872 F. 2d 619 (C.A.-2, 1989)
Reversed: 85 T.C. 824 (1985)
Yanina McMann
Tax 8030

2. Background
Sal Lessinger; sole proprietor of “Universal Screw and Bolt Co.”
Incorporated under New York law by his attorney
Entity had negative net worth at the transfer (liabilities > assets)
“Loan receiveable- SL” entry on books for $255,499

3. Q1 & Analysis 1
Q1: When assets are transferred but no new stock is issued, does the transfer still qualify as Sec. 351?
Yes. If it’s a sole shareholder and the transfer is into a wholly-owned operation.

4. Q2 and Analysis 2
Was the created debt real and countable toward the non-recognition when there is negative net worth (Sec 357(c))?
Commissioner: no due date, interest rate
Taxpayer: later signed a prom. note; Midland Marine used is as collateral;
Yes, the debt is real

5. Q3 and Analysis 3
What is the adjusted basis of the transferred property to the corporation?
No gain recognized under Sec. 351 unless falls under Sec. 357(c)
Normally, basis = asset
In this case: basis to corp. is face amount in hands of taxpayer