Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec. 351 transaction. Ralph receives stock worth $60,000 and a short- term note having a $10,000 FMV. Ralph's basis in the stock is

Question

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Ralph's basis in the stock is equal to the FMV of the property transferred, which is $70,000. However, since Ralph also received a short-term note with an FMV of $10,000, his basis in the stock is reduced by the FMV of the note, which is $10,000. Therefore, Ralph's basis in the stock is $60,000.

Ralph Transfers Property with an Adjusted Basis of $65,000 and an FMV