Ron, David, and Mary formed Widget, Inc. Ron and David each received 40% of the
ID: 2336376 • Letter: R
Question
Ron, David, and Mary formed Widget, Inc. Ron and David each received 40% of the stock, and Mary received the remaining 20%. Ron contributed land with an FMV of $70,000 and an adjusted basis of $20,000. The corporation also assumed a $30,000 liability on the property. David contributed land with an FMV of $30,000 and an adjusted basis of $15,000. David also contributed $10,000 in cash. Mary received her stock for services rendered. She normally would bill $20,000 for these services. What is David's basis in the corporate stock received?
a. $0
b. $25,000
Explanation / Answer
b. $ 25,000
David's basis in the corporate stock received is the value of the adjusted basis of the land contributed, being $15,000 and the conribution made in cash, being $10,000. This is as per IRC section 358.
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