Assume no elections are made and that the general Internal Revenue Rules apply.

Question

Assume no elections are made and that the general Internal Revenue Rules apply. An individual contributes three properties to a corporation in a 351 exchange. The first property has a basis of $50000, and fair market value of $10000. The second property has a basis of $100000, and fair market value of $85000. The third property has a basis of $70000, and fair market value of $80000.

86.The individual's stock basis after the transfer is: A. 220000 B. 0 C. 175000 D. 200000 E. A and C only F. None of the above

87.What is the corporation's basis in property 1 after the transfer (rounded to nearest whole number) A. $17273 B. $12944 C. $32727 D. $50000 E. $10,000 F. None of the above 88.What is the corporation's basis in property 2 after the transfer? (rounded to nearest whole number) A. $100000 B. $15723 C. $85000 D. $87727 E. None of the above 89.What is the corporation’s basis in property 3 after the transfer? (rounded to nearest whole number) A. $80000 B. $9877 C. $3984 D. $70000 E. None of the above

Please use the following fact pattern to answer questions 86, 87, 88 and 89. Assume no elections are made and that the general Internal Revenue Rules apply. An individual contributes three properties to a corporation in a 351 exchange. The first property has a basis of $50000, and fair market value of $10000. The second property has a basis of $100000, and fair market value of $85000. The third property has a basis of $70000, and fair market value of $80000. 86. The individual's stock basis after the transfer is A. 220000 B. 0 C. 175000 D. 200000 E. A and C only F. None of the above 87. What is the corporation's basis in property 1 after the transfer (rounded to nearest whole number) A. $17273 B. $12944 C. $32727 D. $50000 E. $10,000 F. None of the above 88. What is the corporation's basis in property 2 after the transfer? (rounded to nearest whole number) A. S100000 B. $1572:3 C. $85000 D. $87727 E. None of the above 89. What is the corporation's basis in property 3 after the transfer? (rounded to nearest whole number) A. $80000 B. $9877 C. $3984 D. $70000 E. None of the above

Explanation / Answer

86. Individual tax basis would be $ 500000 + $ 1000000 + $ 700000 = $ 2200000

Section 362 imposes similar rules regarding the corporation’s tax basis in property received in the transaction. The corporation takes a “carryover” basis in property received in a Section 351 exchange so that when it subsequently sells or disposes of such property it will recognize the same amount of income or gain that the shareholder would have recognized had he or she sold the property rather than contributing it to the corporation. Accordongly, answers for Q 87, 88 and 89 would be Options D, A and D

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