An individual contributes property and cash of $15000 to a corporation in a 351 exchange. The individual is the sole shareholder. The property has a basis of $15000, and a fair market value of $50000. The corporation then elects to be taxed as an S-corporation. At the end of the S-corporation's first year, it has non-separately stated income of $50000. What is the shareholder's basis in the s-corporation after year 1?
A. 30000
B. 80000
C. 50000
D. 0
Issuance of stock in exchange for property is a non taxable transaction under section 351 only if all the contributors of cash + propertry have 80% or more control.
Shareholder's basis for stock = Carryover basis - Mortgage debt (if any)
As the indivial is the sole shareholder, the individual has 100% control
Individual basis = Cash + Basis of the property
= 15,000 + 15,000
= 30,000
Shareholder's basis in the S-Corporation = Initial basis +/- % income/loss +/- % seperately stated items + % tax-exempt income - % non deductible income - Distributions received
= 30,000
The answer is A.
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