Question

In year 1, Stone, a cash basis taxpayer, incorporated her CPA practice. No liabilities were transferred....

In year 1, Stone, a cash basis taxpayer, incorporated her CPA practice. No liabilities were transferred. The following assets were transferred to the corporation:

Cash (checking account) $500
Computer equipment:
Adjusted basis 30,000
Fair market value 34,000
Cost 40,000

Immediately after the transfer, Stone owned 100% of the corporation's stock. The corporation's total basis for the transferred assets is:

Business   Accounting   
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Answer #1

As stone receives compensation in the form of stock and is having 100% control over the corporation ( required is minimum 80%) the transaction qualifies for tax free transfer. (IRC 351). So, adjusted basis is taken into consideration for determining the basis for corporation ( under sec 362).

So the Corporations total basis for transfered assets =$500+$30000

                                                                                =$30500

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