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Tax Guide for Small Business, page 72
Publication 334 (Rev. Nov. 87)
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Exchange for Corporate Stocks.

In certain cases, exchanges for corporate stock are nontaxable. 
The rules for these nontaxable exchanges are given below.

A corporation's own stock.  A corporation may dispose of its own
stock, including treasury stock, without having a recognized gain
of loss.  For options acquired or lapsed after July 18, 1984,
there is no recognized gain or loss by a corporation as to any
lapse or acquisition of an option to buy or sell its own stock,
including treasury stock.

Stock for stock of the same corporation.  You may exchange common
stock in the same corporation, or preferred stock for preferred
stock in the same corporation, without having recognized gain or
loss.

Convertible stocks and bonds.  If you convert bonds into stock,
or preferred stock into common stock, there is no recognized gain
or loss.  For this rule to apply, the stock you receive must be
in the same corporation as the bond or preferred stock you
convert.  The conversion also must be made according to the terms
of the bond or preferred stock certificate.

Property for stock.  If you transfer property to a corporation in
exchange for stock or securities in that corporation, and
immediately afterwards you are in control of the corporation, the
exchange is usually nontaxable.  This rule applies both to
individual investors and groups of investors who transfer
property to a corporation.

However, if the property exchanged includes depreciable property,
you may be taxed on ordinary gain because of depreciation.  See
Chapter 23.

Control of a corporation.  To be in control of the corporation,
you or your group of investors must own, immediately after the
exchange, at least 80% of the total combined voting power of all
classes of stock entitled to vote and at least 80% of the
outstanding shares of each class of nonvoting stock.

Example.  You and Bill Jones transfer property having a basis of
$100,00 to a corporation for stock having a fair market value of
$300,00.  However, this represents only 75% of each class of
stock of that corporation.  The other 25% already had been issued
to someone else.  You and Bill recognized a taxable gain of
$200,000 on the transaction.

Services rendered.  The term property does not include services
rendered or to be rendered to the issuing corporation. 
Therefore, stock received for services is income to the
recipient.

Example.  You transfer property worth $35,000 and render services
valued at $3,000 to a corporation in exchange for stock valued at
$38,000.  Right after the exchange you own 85% of the outstanding
stock.  No gain is recognized on the exchange of property;
however, you will recognize ordinary income of $3,000 as payment
for services you rendered.

Property of relatively small value.  The term property does not
include property that is of relatively small value when it is
compared to the value of stock and securities already owned or to
be received for services by the transferor, if the main purpose
of the transfer is the nonrecognition of gain or loss by other
transferrers. 

Property transferred will not be considered to be of relatively
small value if the fair market value of the property transferred
is at least 10% of the fair market value of the stock and
securities already owned or to be received for services by such
person.

Stock Received in disproportion to property transferred.  If a
group of investors exchange property for corporate stock, each
investor does not have to receive stock in proportion to his or
her interest in the property transferred.  However,, if a
disproportionate transfer takes place, it will be treated for tax
purposes in accordance with its true nature.  It may be treated
as if the stock and securities had been received in proportion
and then some of it had been used to make gifts, to pay
compensation for services, or to satisfy obligations of the
transferor.

Money or other Property.  If, in a nontaxable exchange of
property for corporate stock, you also receive money or property
other than stock, you may have a taxable gain.  However, you are
taxed only up to the amount of money plus the fair market value
of the other property you receive.  The rules for figuring gain
in this situation generally follow those for a Partially
nontaxable exchange discussed earlier under Like-kind exchanges. 
No loss is recognized.