On October 3, 2017, two individuals form Gray Corporation under section 351 and

Question

On October 3, 2017, two individuals form Gray Corporation under section 351 and acquired 100% of the stock. These individuals, Mary and West, made the following contributions:

                                                      Adjusted basis             Fair Market

                                                                                                   Value

From Mary- Cash                                   $360000             $360000

Patent                                                     $0                       $40000

From West - Equipment

(deprecition claimed of $100000)           $240000             $370000

What will be Mary's basis in the stock she receives?

a) 0

b) 180000

c) 360000

d) 400000

e) some other amount________________

Explanation / Answer

Mary's basis in the stock she receive will be 360000.

A shareholders basis in stock under 351 transaction is computed as

Adjusted basis of the property + any gain/loss recognized by the shareholder = Adjusted basis of stock.

for this purpose property include cash and patent

Adjusted Basis of cash 360000

Adjusted Basis of Patent 0

Adjusted Basis of Stock 360000   

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