Mario and Lupita form a corporation in a transaction coming under Sec. 351. Lupita transfers property with an adjusted basis of $150,000 and an FMV of $200,000 in exchange for one-half of the stock. The property has an $80,000 mortgage, which the corporation assumes. Lupita has a recognized gain of
A)$0.
B)$50,000.
C)$100,000.
D)$80,000.

Question

Quizplus · Accepted Answer

Under Section 351 of the Internal Revenue Code, no gain or loss is recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation, and immediately after the exchange, such person or persons are in control (meaning they own at least 80% of the stock) of the corporation. In Lupita's case, the transfer of property with a mortgage does not trigger recognition of gain, as the assumption of the mortgage by the corporation is treated as part of the exchange. The gain is not recognized unless there are other circumstances that require recognition, such as receipt of boot, which is not indicated in the scenario provided.

Mario and Lupita Form a Corporation in a Transaction Coming