Earl and Mary form Crow Corporation. Earl transfers property, basis of $200,000 and value of $1,600,000, for 50 shares in Crow Corporation. Mary transfers property, basis of $80,000 and value of $1,480,000, and agrees to serve as manager of Crow for one year; in return Mary receives 50 shares of Crow. The value of Mary's services is $120,000. With respect to the transfers:
A) Mary will not recognize gain or income.
B) Earl will recognize a gain of $1,400,000.
C) Crow Corporation has a basis of $1,480,000 in the property it received from Mary.
D) Crow will have a business deduction of $120,000 for the value of the services Mary will render.
E) None of these.

Question

Quizplus · Accepted Answer

Crow Corporation can deduct the value of services Mary will render as a business expense, which is $120,000.

Earl and Mary Form Crow Corporation