Alice and Joe are going to form a business entity. Alice will contribute cash of

Question

Alice and Joe are going to form a business entity. Alice will contribute cash of $200,000 for a 40% ownership interest and Joe will contribute land worth $300,000 (basis of $180,000) for a 60% ownership interest. Which of the following statements is correct?

a.If the entity is a general partnership, Alice has $0 recognized gain and a basis for her partnership interest of $152,000 ($380,000 × 40%), and Joe has $0 recognized gain and a basis for his partnership interest of $228,000 ($380,000 × 60%).

b.If the entity is a C corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has a recognized gain of $120,000 and a basis for his stock of $300,000.

c.If the entity is an S corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has $0 recognized gain and a basis for his stock of $180,000.

d.Only "If the entity is a C corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has a recognized gain of $120,000 and a basis for his stock of $300,000" and "If the entity is a general partnership, Alice has $0 recognized gain and a basis for her partnership interest of $152,000 ($380,000 × 40%), and Joe has $0 recognized gain and a basis for his partnership interest of $228,000 ($380,000 × 60%)" are correct.

e."If the entity is a C corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has a recognized gain of $120,000 and a basis for his stock of $300,000", "If the entity is an S corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has $0 recognized gain and a basis for his stock of $180,000", and "If the entity is a general partnership, Alice has $0 recognized gain and a basis for her partnership interest of $152,000 ($380,000 × 40%), and Joe has $0 recognized gain and a basis for his partnership interest of $228,000 ($380,000 × 60%)" are correct.

Explanation / Answer

ANSWER:c.If the entity is an S corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has $0 recognized gain and a basis for his stock of $180,000.

Reason:

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