Fundamentals of Taxation 2011 4th Edition by Ana Cruz, Debra Prendergast, Dan Schisler, Michael Deschamps

Exercise 10

Two individuals form a corporation and own all of its stock. One individual contributes cash, and the other contributes property encumbered by a mortgage. The new corporation assumes the mortgage. Which of the following statements is true with respect to the individual who contributes the property? a. Because the 80% test is met, no gain or loss will be recognized.
B) Gain is recognized to the extent of relief of liability.
C) Gain is recognized to the extent of relief of liability in excess of the basis of property contributed.
D) Gain is recognized to the extent the fair market value of the stock exceeds the basis of the property contributed.