Question

2. Forming a Corporation (Obj. 1) Berry forms a corporation by transferring land worth $100,000 for 100% of the stock in the corporation. Berry paid $30,000 for the land.

1. How much gain or loss do Betty and the corporation recognize on the transfer?

2. What is Betty’s basis in her shares of the in the corporation?

3. What is the corporation’s basis in the land?

Answer 1

As per sec 351 at the time of formation of corporation issue of stock in exchange for property is non-taxableonly if all contributors of cash and propert have 80 % or more control.

In this cash, Shareholder's basis in stock = Carryover basis - Mortgagae debt

Corporation's basis = Carryover basis.

So due to section 351 B and corporation will not recogize any gain.

B's basis in the shares will be $30,000.

Corporation's basis in the stock will be $30,000.

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