ExpertMedium1 markMultiple Choice
CPA · Question 41 · Area II: Entity Tax Compliance
A taxpayer contributes property with a basis of $100,000 and FMV of $150,000 to a C Corporation for 100% of the stock. The corporation assumes a liability of $120,000 on the property. What is the taxpayer's recognized gain?
A taxpayer contributes property with a basis of $100,000 and FMV of $150,000 to a C Corporation for 100% of the stock. The corporation assumes a liability of $120,000 on the property. What is the taxpayer's recognized gain?
Answer options:
A.
$0
B.
$20,000
C.
$50,000
D.
$30,000
How to approach this question
Check for §357(c) Liability in Excess of Basis. Gain = Liability Assumed - Adjusted Basis of Assets Transferred.
Full Answer
B.$20,000✓ Correct
IRC §357(c). If the sum of liabilities assumed exceeds the total adjusted basis of property transferred, the excess is recognized gain. $120,000 - $100,000 = $20,000.
Common mistakes
Ignoring the liability excess; recognizing the full realized gain ($50k).
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