[vukz]

I am currently using the Wiley review and I have noticed inconsistencies in the following question. It is in regards to contributions to a corporation and any clarification would be greatly appreciated.

The situation is that 4 shareholders each contributed property to for a C Corp and each will have a 25% interest. This will qualify as Sec. 351 property to due 80% control.

If person A contributes the following

Property FMV – 120,000

Liability Associated – 60,000

Basis in Property – 100,000

Cash Contributed – 0

Cash Received – 10,000

Person B contributes the following

Property FMV – 40,000

Liability Associated – 20,000

Basis in Property – 20,000

Cash Contributed – 30,000

Cash Received – 0

The Tax Basis for Person A should be

$100,000 (basis) + $10,000 (gain recognized) = $110,000 OR

$100,000 (basis) + $10,000 (gain recognized) – $10,000 (cash received) – $40,000 (liabilities assumed) = $40,000

The Tax Basis for Person B should be

$20,000 (basis) OR

$20,000 (basis) + $30,000 (cash contributed) – $20,000 (liabilities assumed) = $30,000

I am not positive which approach I should take. I was under the impression that the tax basis in property was simply the basis + any gain recognized + any cash paid – any cash received. I thought that you only deduct the liabilities assumed when dealing with partnerships and in that case it would be on the proportion assumed by the partnership. Not sure how Wiley has two answers for the same question. Any help would be greatly appreciated.

Thanks,

Vukz

FAR (75)
AUD (76)
BEC (75)
REG (72), (80)