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).