Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing shareholder?
A)The shareholder recognizes gain and loss on the transfer and the corporation's basis in the property transferred equals its fair market value.
B)The shareholder does not recognize gain and loss on the transfer and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred.
C)The shareholder recognizes gain and loss on the transfer and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred.
D)The shareholder does not recognize gain and loss on the transfer and the corporation's basis in the property transferred equals zero.

Question

Quizplus · Accepted Answer

When an existing shareholder contributes capital to a corporation, the shareholder does not recognize gain or loss on the transfer. The corporation's basis in the property transferred equals the shareholder's basis in the property transferred. This is known as a non-recognition transaction under Section 351 of the Internal Revenue Code.

Which of the Following Statements Best Describes the Tax Consequences