[Anonymous]

Hi, I’m a bit stumped with this question from the Wiley Test bank:

Washington, Lincoln, and Roosevelt formed President Corporation during 2013. Pursuant to the incorporation agreement, Washington transferred cash of $60,000 for 600 shares of stock, Lincoln transferred property with an adjusted basis of $5,000 and a fair market value of $15,000 for 150 shares of stock, and Roosevelt performed services valued at $25,000 in exchange for 250 shares of stock. Assuming the FMV of President Corporation’s stock is $100/share, what is President Corporation’s tax basis for the property received from Lincoln?

A: $150,000. The requirement is to determine President Corporation’s tax basis for the property received in the incorporation from Lincoln. Since Washington and Lincoln are the only transferors of property and they in the aggregate own only 750 of the 1000 shares outstanding immediately after the exchange, Sec. 351 does not apply to provide nonrecognition treatment to Lincoln’s transfer of property. As a result, Lincoln is taxed on his realized gain of $10,000, and President Corporation has a cost basis of $15,000, (i.e. FMV) for the transferred property.

Does anyone know where I can find some good notes that cover this, I don’t think Becker does. I never knew that a partner contributing services would also affect other partners that contribute property. Thanks.

[Anonymous]

Oh i got tricked, this quesiton has nothing to do with partnerships at all.

[Author]

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