INCORRECT. Sam realizes $85,000 of gain and Rebecca realizes $2,000 of gain. However, under § 351, they are permitted nonrecognition with respect to this gain because they meet the following requirements. They transferred property to Cheers solely in exchange for stock. Immediately after the transfer, they were in control of Cheers, because together they owned more than 80 percent of all classes of Cheers stock. Reread § § 351(a), 368(c).

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