Case Study: Please include Facts, Issues, Conclusions, and Authorities & Applica

Question

Case Study: Please include Facts, Issues, Conclusions, and Authorities & Application

Case 6.   Contingent liabilities in a Section 351 transfer

Xco is an accrual basis taxpayer with multiple lines of businesses. One business is a gas station. The land underneath the gas station did not appear contaminated when Xco purchased it. However, the land now has potential soil and groundwater problems (environmental liabilities). Xco engaged in a section 351 tax free exchange transferring the gas station to a new subsidiary Sco in exchange for the stock of Sco and the assumption of the environmental liabilities. Before the transfer, Xco did not take any environmental remediation efforts to clean up the land’s soil and groundwater problems. How is the basis of Xco’s land determined?

Explanation / Answer

the basis of Xco's land will be determined after taking into consideration the liablity that it have to incur to take the remedial action to restore the potential of the land.

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