Which of the following statements best describes the "built-in loss" rules that apply to the basis of property transferred to a corporation under section 351?
A)If the basis of a property transferred to a corporation under section 351 exceeds its fair market value, the corporation will always take a tax basis in the property equal to the property's fair market value.
B)If the basis of a property transferred to a corporation under section 351 exceeds its fair market value, the corporation will always take a tax basis in the property equal to the property's tax basis in the hands of the shareholder.
C)If the aggregate basis of all property transferred to a corporation under section 351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate fair market value of the property.
D)If the aggregate basis of all property transferred to a corporation under section 351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate tax basis of the property.

Question

Quizplus · Accepted Answer

The built-in loss rules under section 351 apply when the aggregate tax basis of property transferred to a corporation exceeds its aggregate fair market value. In this situation, the corporation's aggregate tax basis in the property cannot exceed the aggregate fair market value of the property. This is because allowing the corporation to have a higher tax basis than fair market value would effectively enable a tax deduction for a loss that has not yet been realized. Therefore, choice C is correct. Choices A and B are incorrect because they are too general and do not address the built-in loss rules specifically. Choice D is also incorrect because if the aggregate tax basis of the property exceeded its fair market value, it would result in a built-in gain, not a built-in loss.

Which of the Following Statements Best Describes the "Built-In Loss