Question

To encourage Pillar, Inc. to build a plant near its borders, the city of Haven, Iowa gifts 20 acres of land with a value of $150,000 and a basis of $30,000 to Pillar. The city did not have a master development plan.

• What is the income recognized by Pillar?
• What is Pillar's basis in the land?
• Same as (a) and (b), but Haven is not a city, but a minority corporate shareholder in Pillar?

Answer 1

Income recognised by Pillar = $150,000

Pillar's basis = $150,000

In case gift given by a corporate shareholder, result will be same unless he is given extra share in the company after this gift or some extra shares. In that case $30,000 will be the Pillar's Basis & The Income will be NIL.

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