Paul,a cash basis taxpayer,incorporates his sole proprietorship.He transfers the following items to newly created Wren Corporation.

With respect to this transaction:

Question

Paul,a cash basis taxpayer,incorporates his sole proprietorship.He transfers the following items to newly created Wren Corporation.

With respect to this transaction:

Quizplus · Accepted Answer

Under § 357(c)Paul recognizes gain to the extent liabilities (mortgage payable of $135,000)exceed the basis of all assets transferred [$120,000 (building)+ $10,000 (cash)].Wren Corporation's basis in the building is $125,000 [$120,000 (Paul's basis)+ $5,000 (gain recognized by Paul)].

Paul,a Cash Basis Taxpayer,incorporates His Sole Proprietorship