[futurevalue]

I’m reviewing results from yesterday’s practice exam–I take REG for the third time on Monday morning Jan 4th.

Let me preface this by saying, I thought property transfers to corporations were always valued at donor’s adjusted basis, and only in rare situations at FMV….I’m generalizing, I realize :(.

Below is the question & answer to question 1575—can someone please help me understand why the first sentence of the answer is correct?

Q:

Porter, the sole shareholder of Preston Corp., transferred property to the corporation as a contribution to capital. Two years later, Corley transferred property to the corporation in exchange for a 10% interest in corporate stock. The property transferred was valued as follows:

Porter’s Transfer Corley’s Transfer

Basis $50,000 $250,000

Fair market value 200,000 500,000

What amount represents the corporation’s basis in the property received?

A. $700,000

B. $550,000

C. $450,000

Incorrect D. $300,000

ANSWER:

When property is transferred to a corporation, the basis of any property received is the FMV at the time of the transfer. Porter’s transfer two years ago had a FMV of $50,000, but the current FMV does not have an impact on the corporation’s basis in the property. The basis in Corley’s contribution is the current FMV, and their basis in the property does not affect the corporation’s basis. The total basis in property contributed to the corporation is the $50,000 original contribution (FMV) from Porter, plus the $500,000 current contribution (FMV) for Corley, which equals a total of $550,000.

Thank you VERY much Ninjas!

[monikernc]

i haven't started REG yet but you seem a little stressed so i used the search bar and found this question has been a topic before.
one response that includes a hero can be found on this page:

https://www.another71.com/cpa-exam-forum/topic/be-my-hero-explain-this-reg-question

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Tripin93]

It depends on what stage the company is in.

At formation stage (when the company is just starting/newly incorporated):
Business's basis = Donor's basis

During course of business:
Business's basis = FMV

Motivated by JC. I do it to make God proud.

FAR: 91 July 2015
AUD: 83 October 2015
REG: 81 January 2016
BEC: 83 February 2016

[Tripin93]

Monikernc, that's a great idea to search old post by using the question number! I'll have to make a practice of this…

Motivated by JC. I do it to make God proud.

FAR: 91 July 2015
AUD: 83 October 2015
REG: 81 January 2016
BEC: 83 February 2016

[monikernc]

tripin…i didn't search by question number, just searched for the name Porter

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[mcohen1993]

Property transfers are actually in the real world values at FMV most of the time. In order for tax free treatment, the person or group transfering property has to be in control of the organizaton (I believe it is over 80%, the same rules for affiliatd groups) at the end of the transfer. So the first transer is values at Basis. The second is at FMV. THat is where you get the $550,000.

REG: 91!!
BEC: 80!!
AUD: TBA
FAR: TBA

In the order I plan to take the exams.

[Tripin93]

MCohen, that sounds familiar and correct! Thanks! I haven't mastered the concepts yet and I'm still studying…

Motivated by JC. I do it to make God proud.

FAR: 91 July 2015
AUD: 83 October 2015
REG: 81 January 2016
BEC: 83 February 2016

[futurevalue]

Oh wow, look at you industrious Ninjtastic peeps! Thank you very much & MCohen, after dizzying review, I finally got the point yesterday! The answer seemed almost cruelly indifferent to the poor mind of a REG student who's been beaten senseless with the concept of “donor's basis becomes partnership basis”—- the revelation came realizing 2nd partner was joining for a 10 % interest….. Now Tripin93, I admire the conviction of your quick reply, but I SWEAR I've seen question/answer situations involving a transfer of property to a partnership long after formation, where the basis to Pship was = to adjusted basis the new contributor had in it…..
Any how, the voluminous replies in such a short time is making me really wish I'd gotten active with this board sooner…

Incidentally, my FAR credit expires on TUESDAY Jan 5th, so I take REG tomorrow, and then Tuesday at 10 AM, I take BEC… (I got a 74 last month, 11/30/15). If anybody feels like sharing their favorite top 10 BEC commandments, I'm all ears!!!

Thank you SO SO much!!!

[futurevalue]

ooops, change every place I said partnership, to corporation!

[Author]

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