Question

Martha and Tom form the MT Corporation, with a transfer of the following properties:

                Martha $1,200,000 cash

               

                Tom $800,000 FMV property

                                                                $300,000 tax basis

                                               

                                                                               

Martha will receive 60% and Tom 40% of the corporate stock.

VARIATION 1: return to original facts (no Karla). Tom’s property is valued at $1,100,000 but is contributed subject to a $300,000 liability.   

Complete the following

                                                                                                Martha Tom

                Realized gain                                                      ________                           ________

                Recognized gain                                                ________                           _________

                Basis of stock                                                     _________                         _________

                MT basis in contributed asset                     __________                       _________

Answer 1

As per section 351, when cash and/or any property is transferred to C Corp. and these contributed capital by one or more of the shareholder constitues 80% or more control in the C corp. then such contributions made by shareholder will not be taxable.

As per sec 351,

Shareholder basis for stock= carryover basis of the shareholder - mortgage debt (if any)

Corporation's basis for property = Carryover basis of the shareholder

Variation 1 :-

For any clarification, please comment. Kindly Up Vote!