Identify which of the following statements is true.
A)The transferee corporation's acquisition or assumption of liabilities in excess of the total adjusted bases of the properties transferred by a transferor results in a gain recognition by the transferor.
B)When a transferor exchanges a mortgaged property under Sec. 351 and the amount of the mortgage is greater than the transferor's basis in the property, the transferor's basis in the stock received will be equal to the basis the transferor had in the mortgaged property.
C)When forming a corporation, the accounts payable of a transferor's business are not liabilities for gain computation purposes if the transferor's business uses the accrual method of accounting.
D)All of the above are false.

Question

Quizplus · Accepted Answer

In a transaction where a transferee corporation acquires or assumes liabilities that exceed the total adjusted bases of the properties transferred by the transferor, the transferor must recognize gain to the extent of the excess. This is because the assumption of liabilities is treated as boot received in the exchange, which can trigger gain recognition if the liabilities assumed exceed the basis of the assets transferred.

Identify Which of the Following Statements Is True