[wakefern58]

Hey guys. If anyone could help explain this it would be greatly appreciated.

Token contributes the following to a C Corp: $10,000 in cash; property worth $40,000 ($5,000 basis), with a related assumed recourse liability of $20,000.

It states that the C Corp’s basis in the property contributed is 10,000 (Basis of 5,000 + Boot recognized of 5,000). According to Becker, the C Corps basis is the greater of the asset contributed plus any gain recognized OR any liabilities assumed by the corporation. Wouldn’t the liabilities of 20,000 here be the basis since 20,000 is greater than 10,000?

[gerald kleiman]

https://www.another71.com/cpa-exam-forum/topic/corporate-formation-sim-in-becker-and-wiley/

[gerald kleiman]

“Wouldn’t the liabilities of 20,000 here be the basis since 20,000 is greater than 10,000?”

Tokens' basis is 0, his gain is 5,000 (20,000 liability – 10,000 cash-5,000 basis = 5,000 liability left over this is the gain, “The taxable portion of the gain will be the difference between the property given, consisting of cash of $10,000 and the property with a basis of $5,000, for a total of $15,000, and the consideration received by Token, other than stock, which is the assumption of the liability of $20,000. As a result, the recognized gain will be $5,000. The $5,000 in gain was recognized because Token's stock basis would otherwise be less than zero.
Amber corp. basis in Token's property would be $10,000 because the property's adjusted basis is $5,000 and Token recognized a gain of $5,000.” (Roger MCQ solution)

[Author]

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