Tia owns 2,000 shares of Bass Corporation common stock with an $80,000 basis. Bass distributes a nontaxable preferred stock dividend. When the preferred stock is distributed, it has an FMV of $60,000 and the FMV of the 2,000 common stock shares is $180,000. The basis of the preferred stock is

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The preferred stock dividend is nontaxable, so Tia does not recognize any gain or loss on the distribution. However, she must allocate her basis between the common stock and the preferred stock according to their relative FMV at the time of distribution. The proportion of her basis allocated to the preferred stock is ($60,000 / $240,000) x $80,000 = $20,000. Thus, the basis of the preferred stock is $20,000.

Tia Owns 2,000 Shares of Bass Corporation Common Stock with an $80,000