Rule: IRC Section 351 controls the taxation of transfers to controlled corporations. No gain or loss is recognized to the transferors/shareholders on the property transferred if certain conditions are satisfied.

Choice "b" is correct. The transaction in this question does not satisfy the conditions of Section 351, and gain or loss can be recognized for each of the shareholders. For Section 351 to apply, the shareholders contributing property, including cash, must own, immediately after the transaction, at least 80% of the voting stock and at least 80% of the nonvoting stock of the corporation. A shareholder who contributes only services (Quigley in this question) is not counted as part of the control group. Thus, only Roberk and Storm are counted, and they together own only 70 shares out of the 100 shares (70%). The $25,000 of legal fees to Quigley is compensation for services rendered and is recognized as income by Quigley. A gain of $90,000 (the fair market value of the land of $100,000 - its adjusted basis of $10,000) is recognized to Roberk. Storm bought shares for cash and has no gain.

Choice "a" is incorrect. This is what would happen if Section 351 applies to all of the transferors/shareholders.

Choice "c" is incorrect. Storm recognizes no gain of any kind since he/she merely bought shares for cash.

Choice "d" is incorrect. Quigley recognizes gain since transferors who contribute only services are not counted as part of the control group for Section 351 purposes. Gain is recognized by transferors who are not part of the control group.