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

With respect to this transaction:

Question

Dick,a cash basis taxpayer,incorporates his sole proprietorship.He transfers the following items to newly created Orange Corporation.
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With respect to this transaction:

Quizplus · Accepted Answer

When a taxpayer transfers assets to a corporation in exchange for stock, the transaction is treated as a sale or exchange of the assets for the fair market value of the stock received. In this case, because Dick is a cash basis taxpayer, the property he transferred is treated as being sold for $120,000 (the fair market value) and thus he has a recognized gain of $5,000 ($120,000 - $115,000 adjusted basis of the building). The corporation's basis in the building is $120,000.

Dick,a Cash Basis Taxpayer,incorporates His Sole Proprietorship