Question type:1. Facts for Questions A through E: In the five situations describ

Question

Question type:1.

Facts for Questions A through E: In the five situations described below in an incorporation transaction qualifying under Code Section 351, Nancy transfers accounts receivable and land to Newco Corporation. The accounts receivable have a fair market value of $100 and a basis to Nancy of $30 and the land has a fair market value of $100 and a basis to Nancy of $80. The fair market value of Newco Corporation stock is stated below, as well as the fair market value of any other consideration Nancy gets.

A. Nan receives only stock worth $200. What is Nan’s basis in her Newco Corporation stock?

a. $110

b. $70

c. $80

d. $200

e. None of the above

B. Nan receives stock worth $100 and cash of $100. What is Nan’s basis in her Newco Corporation stock?

a. $110

b. $70

c. $80

d. $200

e. None of the above

C. Nan receives Newco Corporation stock worth $100, and Newco Corporation assumes a $100 incurred liability of Nan with no improper tax motive on the part of Newco Corporation or Nan. What is Nan’s basis in her Newco Corporation stock?

a. $110

b. $80

c. $10

d. $200

e. None of the above

D. Nan receives Newco Corporation stock worth $100, and Newco Corporationassumes a $100 incurred liability of Nan with an improper tax motive on the part of Nan. What is Nan’s basis in her Newco Corporation stock?

a. $60

b. $80

c. $10

d. $200

e. None of the above

E.Nan receives Newco Corporation stock worth $70, and Newco Corporation assumes a $130 incurred liability of N with no improper tax motive on the part of Newco Corporation or Nan. What is Nan’s basis in her Newco Corporation stock?

a. $60

b. $70

c. $200

d. $0

e. None of the above

Explanation / Answer

A. Nancy's basis in the new corporation will be equal to the fair value of assets given by her that is $200. Therefore, d is the correct answer.

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