Question

van incorporated his sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation’s stock. The property transferred to the corporation had the following fair market values and adjusted bases:

	FMV			Adjusted Basis
Inventory	$	16,500		$	26,250
Building		60,000			56,750
Land		62,750			51,000
Total	$	139,250		$	134,000

The fair market value of the corporation’s stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Ivan. The transaction met the requirements to be tax-deferred under §351.
What amount of gain or loss does Ivan realize on the transfer of the property to his corporation
What amount of gain or loss does Ivan recognize on the transfer of the property to his corporation?
What is Ivan’s basis in the stock he receives in his corporation?
What is the corporation’s adjusted basis in each of the assets received in the exchange?

Answer 1

Part 1

Ivan realizes a net gain of $5250 on this transfer, computed as follows :

Fair market value of stock received........................ $139250

- Adjusted tax basis of the property transferred....... 134000

Gain realized...............................................................$ 5250

Part 2

amount of gain or loss does Ivan recognize on the transfer of the property to his corporation = $0

Ivan does not recognize any gain or loss on the transfer because the requirements of §351 are met and no boot is received in the exchange.

Part 3

Ivan’s basis in the stock he receives in his corporation = 134000.

Ivan’s tax basis in the stock received is a substituted basis of the assets transferred.

Part 4

The corporation receives a carryover basis in the assets received from Ivan.

Inventory =$26250

Building = 56750

Land = 51000

Total = 134000